Sistem Pengukuran Akuntansi: Biaya Historis, Biaya Saat Ini, Harga Jual

GODFREY CHAPTER 6 (ACCOUNTING MEASUREMENT SYSTEM)
Three Main Income And Capital Measurement Systems
The study of accounting practice normally starts with a consideration of the range of technical issues relating to
\recording and reporting financial or economic activity. However, the basic tedmical processes have changed very little
since the double-en\Jy accounting system was described by Pacioli in the fifteenth centuty. Over the years that followed and
with increased momentum during the industrial revolution, especially after the Wall Street collapse in 1929, the traditional
historical cost system emerged. However, the historical cost system was not systematically codified as the fundamental basis
for measuring capital, and for recording and reporting the economic and related activities of an entity, until the late 1930s.
In the 1960s, several alternative systems were then developed that challenged historical cost as the fundamental accounting
system. The first was an updated cost system that proposed to measure the current costs of resource usage and to value
capital at current buying prices. The second applied current selling prices.
There were two basic current buying price systems. In 1961, Edwards and Bell proposed a system of current cost
accounting in The Theory and Measurement of Business Income. 1 Because the system was based on current market costs,
it can be regarded as the first methodical presentation of a fair value accounting system. The Edwards and Bell system was
based on the concept of financial capital maintenance but, as illustrated in the second version of current cost that uses
physical capital maintenance, the choice of the capital concept significantly affects the derived measure of profit. The second
major system used selling prices or exit values to derive n1easures of income and capital. Support for different versions has
varied, and the chapter goes on to outline and describe the advantages and disadvantages of each accounting system. We
also note that the systems have attained varying support in a global context and recent international accounting standards
partially incorporate each system within the notion of 'fair value'.
Historical Cost Accounting
The rationale for historical cost came from several sources with the most influential a book by Paton and Littleton, An
Introduction to Corporate Accounting Standards. 2 We rely on their book for many of the arguments for tl1e theoretical
support of historical accounting today.
Objective of accounting
With the growth of the corporation over the last century and a half, accounting information took on greater significance as
a source of information about firms. One reason for this is that the corporate form for a large business caμsed a separation
of business ownership and control. Absentee owners do not possess nrst-hand knowledge of the operations and conditions
of the firm and, therefore, must depend to some extent on accounting reports for information. The large company also has
made evident
that the firm has an identity of its own, separate and distinct from owners, creditors and all other interested parties. Although
owners and creditors supply the funds to the business entity, they are in most cases considered I outsiders' and have no
special access to the records and accounts of the entity.?Accountability, therefore, is seen to be the most critical objective
of the reporting function. In particular, the stewardship function of managers was seen as the focus of attention of
accountants in reporting to· external parties. Owners and creditors are concerned mainly about what management has done
with the funds entrusted to them. Paton and Littleton highlighted this stewardship function: Corporation reports should rest
upon the assumption that a fiduciary management is reporting to absentee investors who have no independent means of
learning how their representatives are discharging their stewardship.
The historical cost stewardship objective emphasises a conservative 'contractual' relationship between a firm and those who
provide resources to it by making management accountable for the input of assets to operations and the subsequent outputs
on the net value of equity from operations. Thus, the income statement is the key communication mechanism. Critics of
historical cost argue that reporting only income ( that matches inputs on an historical cost basis) with no recognition of the
changing value of assets and liabilities is misleading and results in incorrect dividend policies. Thin is because there may
be losses or gains simply from holding assets ( or liabilities), and this should be recognized when evaluating performance
on a regular basis. Instead, under the historical cost view, changes in asset values are basically ignored until the asset is sold
or disposed of by sale or 'write-off/write-down'. That is, a transaction must occur in order for the accounting event to be
recognised. These valuation issues are a repeated theme in the literature. In summary, under historical cost theory,
determining the residual 'net value' of the firm is not of any high importance.
Bendigo and Adelaide Bank's decision to book a paltry $20 million provision against a messy and litigious exposure to the
collapsed management investment scheme Great Southern will undoubtedly come back to haunt it. In a market update before
its annual profit results next week, the bank's new boss Mike Hirst reserved 3 per cent of the $556 m in loan exposures
against bad debts, while the total arrears are 22 per cent. Using as much spin as possible, Hirst did his best to play down the
risk in this exposure on the basis that the credit quality of these loans was "very strong". By "very strong" he meant about
80 per cent of Great Southern investors earned more than $100,000 a year, 60 per cent were professionals and 75 per cent
had a loan size of less than $250,000. The problem with this is, by its own admission in slide 8 of the presentation titled
strategic arrears, it is Bendigo's wealthiest investors who are causing it the most grief by not paying back their loans. The
presentation shows that investors with net assets to loan value at drawdown of greater than five times are in arrears with the
bank to the tune of $52 m, compared with $4.6 m for the least wealthy investors, or those with net assets to loan value at
drawdown of less than two times. What this means is, the richest are playing hardball and basically telling the bank to get
nicked. Given Great Southern collapsed in May, and more and more law firms are preparing class actions on behalf of
investors, it's a nightmare scenario. If these investors, plus others, are able to challenge the validity of the loans in the hands
of Great Southern, then the bank has a $550 m problem on its hands. The writeoffs (announced) yesterday will reduce the
group's net profit by almost 16 per
cent. It said cash earnings per share would be 63 c for 2009, which means the second half EPS
is 19 c compared to 44 c in the first half.
Capital and profit
In order for historical cost profit to be determined, the accounting entity must first retain the same amount of capital (assets
minus liabilities) that it had at the beginning of the period - where all assets and liabilities are valued at their historical
purchase cost. Thus, income is the increment in historical cost capital at the end of the accounting period. Paton and Littleton
described profit determination as follows: Accounting exists primarily as a means of computing a residuum, a balance, the
difference between costs ( as efforts) and revenues ( as accomplishments) for individual enterprises. This difference reflects
managerial effectiveness and is of particular significance to those who furnish the capital and take the ultimate responsibility.
lncome indicates the accomplishments of the firm for the given period expenses represent the efforts expended (in matched
historical costs terms) and pioht correlates with the effectiveness of the firm as an operating unit. The income statement is
therefore the most important financial statement, since it reveals the results of the operations of the business. The balance
sheet is not of great significance; it serves merely as a 'connecting link joining successive (income statements] into a
composite picture of the income stream'.s The permanence of the operating income stream reflects the fundamental value
of the fom, which, in the final analysis, is the basis of value for any enterprise. At one time in the United States, the Financial
Accounting Standards Board (FASB) used the term 'revenue-expense view' for the theory that emphasises the definition and
measurement of profit by direct reference to revenues and expenses. It used the term 'asset-liability view' for the theory that
emphasises the changes in value of assets and liabilities in the definition and measurement of profit. There are two
fundamental concepts to the historical cost revenue-expense viewpoint: matching of costs and conservatism.
Matching of costs theory
The historical cost accountant keeps track of the flow of costs. Because costs attach, this is just another way of saying that
the accountant keeps account of the transactions of the business. As the firm purchases goods and services, the accountant's
task is to trace the movement of costs and attach (match) them to the revenues received as they flow through the business.
In other words, the accountant must decide which costs have 'expired' and therefore are to be matched against income in the
income statement, and which costs remain 'unexpired' and are to be placed on the balance sheet as the residual ( unmatched
assets). In describing this process, Paton and Littleton, somewhat poetically, declare that 'inventories and plant are ... cost
accumulations in suspense, as it were, awaiting their destiny'. 6 Their destiny, of course, is to expire on the income statement.
Thus, we can see that the matching concept is of critical importance in historical cost accounting. It is this concept which
guides the accountant in deciding which costs are to be considered expenses. Terms such as 'expired costs' for expenses and
'amortised costs' for non-monetary assets stem from the costs attach theory as applied to the allocation of historical costs.
1. Xx
2. 38-68
3. 72-105
4. 112-148
5. 152-176
6. 180-244
7. 246-272
8. 276-307
9. 310-345
10. 348-371
11. 376-415
12. 420-456
13. 462-
GODFREY CHAPTER 10 (EXPENSES)
Business enttt1es engage in a range of revenue-generating activities which may give rise to expenses. Determining the
correct amount of expense to be recorded in an accounting period is very important, as it affects a firm's repmted financial
position and performance. However, calculating the amount of expense and when it should be recognised is not a
straightforward process. In the first section of this chapter, we explore the nature of expenses and the definitions presented
in the literature. We discuss standard setters' definitions of expenses and explain the relationship of expenses and losses.
Expenses represent either an increase in liabilities or a decrease in assets, with a subsequent effect on equity. We explain
how this definition is applied in practice and discuss the behavioural view of expense. Recognition criteria for expenses are
fundamental to accounting practice. In the second section of the chapter, we discuss guidance provided in the IASB/AASll
Framework and accounting standards for recognition and measurement of expenses. We explore how expenses are
determined using the matching approach. Methods of allocating expenses ( associating cause and effect, systematic and
rational allocation, and immediate recognition) are outlined. Existing practices, such as matching and conservatism, give
rise to issues for accounting standard setters and auditors. We discuss current issues for standard setters and auditors in the
fi.nal two sections of the chapter.
EXPENSES DEFINED
The discussion of assets, liabilities and equity, and revenue ( chapters 7, 8 and 9) provides some background for us to
understand the nature of expenses. We know that an expense has to do with a decrease in value of the firm. Expenses arising
in the course of the ordinary activities include, for example, cost of sales, wages and depreciation. They usually take the
form of an outflow or depletion of assets such as cash and cash equivalents, inventory, and property, plant and equipment
(Framework, para. 78). In the Framework paragraph 70, expenses are defined as follows:
Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or
incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
Expenses encompass losses as well as expenses which arise in the course of ordinary activities of tl1e entity. Losses may or
may not arise in the course of ordinary activities of the entity. However, the Framework states that losses represent decreases
in economic benefits and are therefore not different in nature from other expenses. Therefore, they are not regarded as a
separate element (para. 79). Firms have sought to distinguish between expenses and losses occurring within and outside
ordinary activities by categorising items as abnormal or extraordinaiy in the income statement. This practice is not permitted
Presentation of Financial Statements. Paragraph 85 states that an entity must not present any items of income or expense as
extraordinary items, emphasising the Framework's all-encompassing definition of expense.
The view represented in the IASB/ AASB Framework differs from that promulgated by the Financial Accounting Standards
Board (FASB), the US standard setter. Concepts Statement No. 6 (paragraphs 68-9) distinguishes between expenses and
losses. The latter are decreases in net assets from 'peripheral or incidental transactions' and from other events that may be
largely beyond the control of the firm. Expenses pertain to the ongoing 1najor or central operations. It is interesting to note
the point made by Henderson, Peirson and Brown concerning this dichotomy:
The FASB distinction between expenses and losses does not seem to be ve1y useful. It requires a judgment about whether
a transaction is part of the entity's 'ongoing major or central operations'. Not having to distinguish between expenses and
losses has distinct advantages ... management will no longer be able to decide that an outflow of assets is a loss and omit it
from the determination of operating profit.
The differences between the FASB and IASB frameworks will be the subject of discussion as the boards seek to converge
their frameworks and standards. Substantial revisions and extensions to the IASB Framework are underway.
Changes in assets and liabilities
As discussed in chapters 7 and 8, revenues and 'Penses are directly related to the value aspects of assets and liabilities. By
their nature, revenues and expenses come about because of events (namely, increases in the value of liabilities or decreases
in the value of assets) in the operation of the business. In reality, the events increasing assets and decreasing liabilities may
be difficult to observe. What makes a definition of expenses operational is the concept of physical flows involving the entity,
thus the Frameworl, definition refers to outflows or depletions of assets or incurrences of liabilities.
The Framework's definition makes no reference to the relationship of expenses to revenue, although botl1 are defined in
terms of future economic benefits. Although revenues and expenses occur as the firm undertakes the activities that will
generate profit, it is preferable to correlate revenues with the actual events of production and sale and to correlate expenses
witl1 the using up of goods or services in support of those events, rather than with those events themselves. The definitions
in the Framework all revolve around future economic benefits, thus ensuring their consistency, using the definition of assets
as the point of reference. Case study 10.1 explores issues relating to carbon emissions and considers whether inflows or
outflows of economic benefits are expected under trading schemes.
Expenses and 'costs'
The Framework implies that the using up of assets entails a cost to the entity. This is in accord with the previous argument
that expenses represent a value change. The value change refers to the sacrifice which the firm must make in acquiring the
services. If there is no cost to the firm, then there is no expense. For example, if an employee renders services without pay,
perhaps in order to gain experience, certainly the company should not record a wages expense. If a machine is donated to a
firm and even though the asset would be stated at fair value, it would be theoretically incorrect, under historical cost
accounting, for the firm to record depreciation. Sometimes an expense is referred to as an 'expired cost'. For example, a
special committee of the American Accounting Association (AAA) in 1957 presented the following definition:
Expense is the expired cost, directly or indirectly to a given fiscal period, of the flow of goods or services into the market
and of related operations. Once we have determined if an outflow is an expense to the firm, the next step is to decide when
it should be recognised. The Frameworl, specifies two criteria for therecognition of expenses in paragraph 83:
An item that meets the definition of an element should be recognised if:
(a] it is probable that any future economic benefit associated with the item will flow to or from the entity; and
(b) the item has a cost or value that can be measured with reliability.
For an expense to be recognised in the financial statements, it must meet both of the recognition criteria. Firstly, it must be
'probable' that tl1e outflow of future economic benefits has occurred. The Framework states that the concept of probability
is in keeping with the uncertainty that characterises the environment in which an entity operates. Assessments of the degree
of uncertainty attached to the flow of future economic benefits are to be made on tl1e basis of evidence available when the
financial statements are prepared (para. 85).
If the probability criterion was interpreted as being more or less than 50 per cent, its application could be at odds with the
qualitative characteristic of prudence (Framework, para. 37). Prudence is 'the inclusion of a degree of caution in the exercise
of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are
not overstated and liabilities or expenses are not understated'. Bear in mind that another qualitative characteristic, neutrality,
requires the information in financial reports to be free from bias (para. 36). Thus, preparers ideally must exercise caution in
their judgements and estimations, but not create a bias in the information reported. For example, the overstatement of
expenses refiecting excessive prudence and lack of neutrality would not be acceptable as the information would not be
reliable.
The second criterion requires that the expense can be 'measured with reliability'. This provides for the case where estimates
are required ( e.g. depreciation expense, provision for doubtful debts) but appropriate evidence to support ilie validity of the
estimates will be necessary. The Framework, paragraph 31, indicates that information is reliable:
when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either
purports to represent or could reasonably be expected to represent.
The Framework indicates that an expense is to be recognised in the income statement when a decrease in future economic
benefits related to a decrease in an asset or an increase of a liability has arisen and can be measured reliably (para. 94). This
means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a
decrease in assets. For example, the change in value of assets gives rise to depreciation, amortisation or impairment expense.
The change in value of liabilities for employee benefits gives rise to gains or losses to be included in income. From the
standard setters' point of view, an expense or loss arises following a change in value of an asset or liability. In practice,
determining when to recognise expenses or losses can be a subject of debate. Case study 10.2 presents material about
recognition ofrevenue, expenses and liabilities related to an airline's frequent flyer program. This case shows that accepted
practice for accounting for frequent fiyer points has changed over time, most recently in response to guidance from IFRIC
(the IASB's standards interpretations committee).
EXPENSE MEASURmENT
The measurement of additions to liabilities and depletion of assets in the current period may seem a simple task. However,
liabilities may increase because of the acquisition in the current period of key operating equipment with an estimated
operating life of many years. Invesunents may be made in the current period in livestock which will not reach maturity and
subsequently generate revenue for a number of years. This means that in measuring expenses in the current period, a number
of decisions need to be made as to how expenses should be allocated across future periods of resultant revenue. There are a
number of accounting standards that provide guidance on such matters, but offer a choice in the method of expense and
revenue apportionment. For example, !AS 16/MSB 116 Property, Plant and Equipment allows for the value of a depreciable
asset to be measured in a number of ways after recognition ( e.g. the cost model or the valuation model) and for several
alternative depreciation options ( e.g. the straight-line, diminishing value and units of production methods). The decision
criteria are meant to be supported by tl1e accrual accounting concept of matching expenses against revenues in the period
to which they relate. The complexity of this process and the underlying discretion in adoption of allocation and measurement
techniques are key issues for students of accounting and are the focus of this section.
Allocation of expenses
One approach to measuring expenses is to allocate them to periods to which they relate. The matching concept forms the
basis of accrual accounting. The !ASB/ AASB Framework recognises the matching concept in paragraph 95 which states
'Expenses are recognised in the income statement on the basis of a direct association between the costs incurred and the
earning of specific items of income'. The matching process involves the simultaneous or combined recognition of revenues
and expenses that result directly and jointly from the same transactions or other events. For example, the various components
of expense making up the cost of sales are recognised at the same time as the income derived from tl1e sale of the goods
(para. 95).
For many accountants, relating effort (expenses) and accomplishments (revenue) for a given period is the main function of
accounting. However, in practice, proper matching is a difficult task, and involves a great deal of judgement on the part of
the accountant. The accountant must identify which assets have been used up (expired) and the amount that should be written
off against revenue for the period. Paton and Littleton state:
The problem of proper matching of revenue and costs is primarily one of finding satisfactory bases of association - clues to
relationships which unite revenue deductions and revenue ... Observable physical connections often afford a means of
tracing and assigning. It should be emphasised, however, that the essential test is reasonableness, in the light of all of the
pertinent conditions, rather than physical measurement. Indeed, the matching concept is of critical importance in historical
cost accounting. It guides the accountant in deciding which costs should be expensed and matched against revenue for the
period, and which costs remain unexpired, to be recorded as assets in the balance sheet. To overcome problems associated
with determining and measuring costs to be expensed and to be carried forward, three basic methods of matching are
commonly relied on. These are:
• associating cause and effect
 systematic and rational allocation
• immediate recognition.4
An example of the arbitrary allocation of a cost based on time was the amortization of goodwill. Before widespread adoption
of IASB standards in 2005, many entities amortised goodwill over 20 years or less, often on the straight-line basis. Some
companies argued that goodwill did not decrease in value, and therefore should not be subject to amortisation. From I
January 2005, IFRS do not require goodwill to be amortised, thereby avoiding the arbitrary assumptions which were used
in the ammtisation process. IFRS 3/AASB 3 Business Combinations paragraph 54 states that, after acquisition, goodwill
acquired in a business combination will be measured at cost less any impairment losses. Thus, an estimation process to
determine goodwill amortisation is no longer necessary. However, it will be necessary for an entity to assess annually the
extent, if any, to which goodwill has been impaired (or reduced in value), which is another type of estimation. An area where
allocations are currently used is in relation to share-based payments. IFRS 2/ AASB 2 Share-based Payment requires that
companies record an expense in relation to all remuneration given to employees, whether in the form of cash, other assets
or equity instruments of the entity. Three forms of share-based payment are identified. These are:
1. equity-settled share-based payments (the entity receives good and services as consideration for its own equity instruments)
2. cash-settled share-based payments (the entity acquires good and services by incurring liabilities for amounts based on the
value of its own equity instruments)
3. other transactions (the entity receives or acquires good and services and the entity, or the supplier, has the choice of
whether the transaction is settled in cash or equity instruments).
'The goods and services received in a share-based payment transaction must be recognised when they are received (IFRS 2,
para. 7). A corresponding increase in equity is recorded for equity-settled plans and an increase in liabilities is recognised
for cash settled share-based payments.
Equity-settled plans are most commonly observed ( e.g. in the United Kingdom and Australia most plans are equity-settled,
not cash-settled). The goods and services received in an equity-settled share-based payment transaction and the
corresponding increase in equity must be measured at the fair value of the goods or services received, unless tl1at value
cannot be reliably estimated (IFRS 2, para. 10). The fair value of the goods and services received is usually measured by
reference to tl1e fair value of the equity instruments granted, al grant date. Fair value should be based on a market price
(IFRS 2, para. 11) but if such a price is not available then an option pricing model (such as Black-Scholes-Merton or a
binomial model) must be used. Thus, the equity-based plan gives rise to an asset or an expense and a corresponding increase
in equity (in relation to shares issued). If the equity instrument vests immediately, the expense in relation to goods and
services provided is recognized immediately and tl1ere is a corresponding increase in equity. However, if the equity
instrument does not vest until certain conditions are met (such as completion of a period of service, or an increase in the
price of the entity's shares) then the fair value of the goods and services received is recorded across the vesting period. That
is, an allocation process is used to apportion me remuneration expense ( me fair value of goods and services to be received)
over the vesting period. For example, if the fair value at grant date of options issued to employees is $12 000 and the vesting
period is four years, men an expense of $3000 will be recognised in each of me four years. Theory in action 10.1 explores
issues relating to accounting for share-based payment plans and theory in action 10.2 explores meir effectiveness as
motivational tools.
ANZ chief executive John McFarlane's total pay as shown in yesterday's annu,11 report 1,vas
$7.2 million. But this figure is dwarfed by the $19.7 million gain he received from cashing in
options throughout the year.
The sheer size of the options payout enjoyed by Mr Mcfarlane highlights tlw large gap
between the accounting treatment and the reality- with $2.1 million shown as "sharP-basecl
payments" in Mr McFarlane's total pay, in contrast with the $19.7 million benefit he actually
enjoyed.
It also flies in the face of suggestions Mr McFarlane did not receive a pay rise, despite his
reported total pay increasing by less than 1 per cent on last year's figure.
To ANZ's credit - unlike many of its peers in the ASX 50 - the gain on the options transactions is reasonably clearly outlined
in the annual report. Yet ANZ still falls short of US disclosure practices by failing to show a year-end price for another 1
million vested options (which means Mr Mcfarlane can cash them in whenever he chooses). These were worth another
$10.1 million to Mr Mcfarlane as of September 30. On the same date, the bank boss held just over 2 million ANZ shares
worth $55.7 million. The Sydney Morning Herald has previously highlighted the lack of meaningful disclosure in many
annual reports of large options transactions by chief executives in Australia's largest companies. In some cases, including
McFarlane's, the deals more than double executives' reported pay totals. In particular, established chief executives in
reasonably successful companies appear to enjoy a late-career benefit of a series of successive share-ownership plans that
result in large payouts. Mr Mcfarlane has been CEO since October 1997, with his extended contract coming to an end in
September next year. On Monday the Herald revealed Westpac chief executive David Morgan received a $3.8 million cash
payment when he exercised 250,000 "stock appreciation rights" from a 1997 share plan. The gain on this transaction was
not disclosed in the annual report, nor was it disclosed to the stock exchange. This was on top of a $6.3 million gain Mr
Morgan received from exercising options. Again, the share-based payments dwarf his reported $8.4 million pay figure. In
Mr McFarlane's case he exercised 2 million options which met the performance hurdles of ANZ beating the ASX 200 banks
index and beating the ASX 100 index, since their issue. He is also eligible for 175 000 performance shares
Questions
1. Since 2005, IFRS 2/AASB 2 requires companies to record an expense in relation to stock options plans. Explain the
requirements of IFRS 2/AASB 2 and how they differ to previous requirements. (Students will need to consult additional
resources. See the list at the end of this chapter.)
2. Provide an overview of the advantages and disadvantages of the requirements of IFRS 2/ AASB 2.
3. The article states that certain executives gain much more on options plans than is shown in their company's accounts. For
example, the ANZ CEO gained $19.7 m cashing in options, but his pay was shown as $7.2 min the 2006 annual report.
Given that IFRS 2 requires the recording of an expense for share-based payments, explain how this could occur.
4. In light of your answer to question 3, do you consider that the requirements of IFRS 2 should be changed? Why or why
not?
Share oplion pLrns vvorl
by Patrick Durkin
Almost three quarters of employee share options plans issued by the top 50 ASX-listed companies since 2003 are now
worthless, research by the law firm Deacons has found. For the companies listed in the bottom two-thirds of the S&P/ASX
300 Index, almost 90 per cent of the plans are worthless. Executives at major listed companies including Macquarie Group,
Toll Holdings, Tabcorp and Babcock & Brown are just some of those who have watched millions of dollars in share options
disappear after the All Ordinaries had its worst calendar year on record in 2008, plummeting 43 per cent. Yesterday, the
share market fell to its lowest point this year, with the S&P/ASX 200 Index losing another 5.2% for the year. Employee
share option schemes have been embraced over recent years, especially by smaller listed companies trying to compete with
their higher-paying rivals in the battle for executive talent. The plans set the share price at which executives can take up the
options and usually vest three years after being issued. The schemes delivered big windfalls at the height of the boom, with
options often being exercised at a fraction of the company's rising share price. But most of the windfalls executives thought
they had pocketed have evaporated. Executives at Macquarie Group and Toll Holdings have been hit particularly hard
because they are the only two companies in the top 50 which exclusively use option plans, rather than performance rights
plans. "Performance rights plans provide at lease some protection from sharp market falls because they have a nil exercise
price and the performance hurdle usually involves comparing the company's total shareholder return against a group of
similar companies," said Andrew Spalding and Shane Bilardi, authors of the research undertaken last month. "Provided that
the company matches or outperforms its peers, the rights can still vest even in a falling market." The average exercise price
for Macquarie options is $61.23, the company's most recent annual report shows. At current levels, its share price would
need to more than double before the option plans regain any value for executives. Tabcorp options would also need to more
than double, being on average 54 per cent out of the money. Timbercorp's share price would need to increase 13 times, with
options on average 92.5 per cent out of the money. Fortunately for executives at the blue chips, many ASX top 50 companies
have moved exclusively to performance rights plans or use them in a combination with option plans. "It seems most of the
top 50 companies have learnt a lesson from the Dotcom crash and moved to performance rights schemes rather than
employee option schemes to ensure that their incentive schemes continue to motivate their employees during downturns in
the market," the authors said. "The same cannot be said for many companies outside the top 100, and this could have an
adverse impact on their ability to retain and motivate their key employees." The exercise prices of options issued under the
plans of the top 50 listed companies are on average 4 per cent above their current share price. But even that result is flattering
because of the strong performances of QBE, Woolworths, Fortescue Metals and Origin Energy and the fact that the worst
performers -Asciano, Centro and Babcock- have dropped out of the top 50. The exercise prices of options issued under the
plans of the companies in the bottom two thirds of the top 300 are on average 49 per cent above their share prices.
Remuneration Strategies Group director Gary Fitton said that any gearing plans put in place before the crash were simply
outdated. "Companies tend to adopt a fairly copycat approach and some investors are now asking whether different
performance hurdles should be used, given the historically low watermark for the market. "You may see more internal
performance measures being adopted and a return to more earnings orientated measures."
Questions
1. Outline the difference between an option plan and a performance rights plan.
2. The article states that almost three-quarters of employee share option plans issued by the top 50 ASX firms are now
worthless. Explain how options can be worthless when companies have billions of dollars of assets.
3. What does an environment of falling share prices reveal about the effectiveness of incentive plans as motivational tools?
Immediate recognition
This last principle for recognising and measuring expenses can be viewed as one that accounts for all other possibilities not
covered by the first two principles. An example of the use of immediate recognition is the recording of advertising expenses.
The effect of advertising may have long-lasting benefits, but they are often difficult to determine. For example, customers
may purchase a product because they were influenced by an advertisement they saw two years previously. Since the benefits
cannot be determined in a credible manner, the cost of advertising is usually recognised immediately as an expense.
Similarly, research expenditure is recognised immediately as an expense under !AS 38/MSB 138 Intangible Assets. Standard
setters (the IASB in this case) hold the view that research expenditure does not meet the recognition criteria for an asset,
that is, future economic benefits are not probable, or cannot be measured reliably. Impairment expenses are another item
given immediate recognition. Although both tangible and intangible assets may be subject to depreciation or amortisation
requirements, the allocation process may involve errors in judgement or asset value may be affected by other unexpected
events. When an asset's recoverable amount is considered to be less than its carrying value, an immediate expense is
recognised in the income statement in accordance with !AS 36/MSB 136 Impairment of Assets. Thus, impairment expenses
arise because of a decline in the value of assets, consistent with the Frameworli's definition of expenses.
Criticisms of allocations
Paton and Littleton furnished a logical framework for conventional accounting. 7 The matching concept is one of the key
features in this framework. Paton and Littleton related the matching of expenses against revenues with the notion of
matching effort with accomplishment. They saw the business process as a flow of costs, a flow that inevitably ends up on
the income statement as costs expire. Determining the amount of costs that have expired is one of the main tasks of the
accountant. However, as indicated by Sprouse,8 the matching process has made the balance sheet secondary to the income
statement; it serves simply as a repository of unexpired costs as they await their time to expire on a future income statement.
This approach reduces the usefulness of the balance sheet for users' decision making. In more recent years standard setters
have focused on definition and recognition criteria for assets and liabilities which ensure the balance sheet is not 'secondary'
to the income statement. Current practice is also criticised by Thomas, who contends that much of what accountants report
is 'rubbish', because accounting information is based mostly on allocations.9 Thomas argues that allocations are theoretically
unjustified. To be justified, three criteria are suggested:
• Additivity. The whole must equal the parts. If an allocation is made of a total, the partitioning of it must exhaust the total,
no more and no less. That is to say, when the allocated amounts are added together, the total is the same as before the
allocation.
• Unambiguity. An allocation method should yield a unique allocation - a clear-cut choice of the method should be made.
The way the allocation is to be conducted should be clear.
• Defensibility. Once an allocation method is selected, the person making the selection must be able to provide conclusive
argument for his or her choice, and defend it against other possible alternative methods.
Thomas argues that allocations in accounting do not meet these criteria, especially the third criterion. It is possible to defend
particular allocation methods; in fact, a variety of methods exist, each of which can be defended. However, there is no
conclusive way to choose one in preference to the others, except arbitrarily. Accountants defend allocations on two grounds.
One argument is that a given input provides se,vices in the current and future periods and the cost allocation pattern reflects
the cost of the se,vices received in the given periods. The other argument is that allocated data serve a useful purpose because
readers of accounting reports, which include allocated data, find them useful. If the first argument is made, Thomas insists
that accountants must show that the services provided by the given input contributed towards a certain amount of cash
inflow or revenue or cost savings. But accountants cannot, Thomas maintains, because allocation asse1tions in the first
place are 'incorrigible'; that is, they are not capable of verification or refutation by objective, empirical means. Thomas states
that 'there is nothing in the external world for allocations to approximate'. 10 He contends:
Conventional allocation assertions do not refer to real-world partitionings; when an incorrigible allocation divides an
accounting total, there is no reason to believe that this reflects the division of an external total into independent parts ...
Conventional allocation assertions do not refer to real-world economic phenomena, but only to things in asserters' and their
readers' minds. 11 If Thomas means that a pattern of services or contributions related to an input does exist in the real world
but accountants' assertions about this pattern are so far removed from the actual pattern as to render their assertions
unrealistic, many accountants can accept such a criticism. But Thomas goes further than that. J-Je contends that the pattern
of setvices or contt·ibutions does not exist in the external world, only in the minds of accountants. Accountants have
convinced themselves and others that such divisions exist when in fact they do not. Thomas remarks, 'our assertions refer
to the contents of our minds, not to the external world'. 12 Another reason the contributions argument in support of
allocations is invalid is due to the 'interaction' of the inputs. An input's individual contributions to the output, or revenue, or
cash inflow during a particular period cannot be known because all the inputs interact with each other to generate an output
total that is different from what they would yield separately. For example, labourers working with machines produce more
output than would be the case if the labourers worked with their bare hands and the machines were left untended. Whenever
inputs interact, calculations of how much revenue or cash inflow has been contributed by each input are meaningless.
We can see why Thomas insists on the points he makes, because by correlating a division of services provided by an asset
with the actual usage of the asset, such as by hours used or kilometres driven, it can be argued that division does have realworld referents and, therefore, allocations are sensible. Allocations may not be accurate, but they would be rational. The
task then would be to devise better ways to approximate the divisions, not necessarily to abandon allocations. But Thomas
argues that the divisions do not exist in reality. If this is true, any argument given to defend allocations is useless. At any
rate, he contends, determining individual patterns of contributions is n1eaningless because of interaction. The second
argument, that allocated data se1ve a useful purpose and therefore such data must be useful, is rejected by Thomas. He
contends that empirical studies claiming existing accounting information is useful do not really demonstrate that it is so. I
le maintains that people have been conditioned to believe that allocated information is valid. 'Conventional allocation
assertions are on a group pragmatic level.'13 Such assertions describe phenomena with words that are used by others but
are internal to the asserter. Accountants are making claims they cannot validate. The solution is to prepare allocation-free
reports. Thomas suggests current exit price reports or net quick assets funds statements. Despite such arguments, standard
setters continue to make allocation proposals. Abandoning allocations would be a drastic departure from what accountants
understand, believe in, and are accustomed to at present. Allocation is a substantial portion of accounting. Even the definition
of an asset implies allocation. An asset is seen essentially as a bundle of future seIVices, and these services are rendered
over current and future periods.
Defence of allocations
Eckel supports Thomas in saying that allocations are arbitrary, but only because the objective of allocations is not defensible.
14 The objective of allocations in conventional accounting is to determine profit by a process of matching, in particular by
cause and effect. The effectiveness of matching depends on the existence of a unique and identifiable cause-and-effect
relationship between costs and revenues. But this cannot be demonstrated as Thomas argues. The objective of allocations,
however, could be changed. For example, it could be changed to: Profit for the period will be the result of the difference
between recognised revenue and the cost allocated to the period on the basis of a straight-line amortisation over n years.
This redefines the process of profit from cause and effect to a particular relationship only: straight-line. Zimmerman has
demonstrated that allocations of costs for internal purposes are useful as devices for controlling and motivating managers,
and therefore are justified. 15 In his analysis, Zimmerman showed that cost allocations appear to represent certain hard-toobserve costs that arise when decision-making responsibilities are assigned to managers within the firm. That is, cost
allocations, when coupled with incentive schemes that encourage managers to pay attention to reported costs, help to lessen
some of the control and coordination problems that arise when managers within the firm are given the right to make certain
decisions. I-le concluded that as long as the benefits of cost allocations ( e.g. fewer delay costs) exceed the costs of cost
allocations (e.g. more record-keeping costs), using allocation techniques is rational. Zimmerman suggested that allocated
fixed costs can serve as a measure for difficult-to-calculate opportunity costs. Using a queuing system to model a service
department of a company, Miller and Buckman concluded that Zimmerman's explanation is valid for cases where economies
of scale are small. 16 Their study sets out certain instances for the allocation of fixed costs by a service department in setting
a charge to a user department.
CHALLENGES FOR ACCOUNTING STANDARD SETTERS
A sound theoretical framework for the financial statements would mean that both the balance sheet ( statement offinancial
position) and income statement present information with the characteristics of relevance and representational faithfulness
(!ASB, 2008). !ASB standards have been written and revised over a period of more than 30 years. The Framework aims to
provide common definitions and recognition criteria, to improve consistency between standards. In addition, the Framework
specifically states that the matching concept should not be applied in such a way as to allow the recognition of items in the
balance sheet which do not meet the definition of assets or liabilities (para. 95). As noted in chapter 9, guidance for revenue
recognition included in !AS 18/AASB 118 gives rise to items in the balance sheet that do not meet the Framework's
definition of assets or liabilities. The IASB is taclding this inconsistency in projects it is currently undertaking. An example
of debatable recognition of expenses or losses within an accounting period is presented in theory in action 10.3. In 2008 the
French bank Societe Generale incurred large losses as a result of the unauthorised activities of an individual trader. Although
they were incurred in 2008, the losses were included in the 2007 accounts, allowing the bank to offset the loss against profits
earned in 2007.
Loophole lets bank rewrite lhe calendar
It is not often that a major international bank admits it is violating well-established accounting rules, but that is what Societe
Genera le has done in accounting for the fraud that caused the bank to lose 6.4 billion euros - now worth about $9.7 billion
- in January. In its financial statements for 2007, the French bank takes the loss in that year, offsetting it against 1.5 billion
euros in profit that it says was earned by a trader, Jerome Kerviel, who concealed from management the fact he was making
huge bets in financial futures markets. In moving the loss from 2008 - when it actually occurred - to 2007, Societe Generale
has created a furor in accounting circles and raised questions about whether international accounting standards can be
consistently applied in the many countries around the world that are converting to the standards. While the London-based
International Accounting Standards Board writes the rules, there is no international organization with the power to enforce
them and assure that companies are in compliance. ln its annual report released this week, Soci€t€ G€n€rale invoked what
is known as the "true and fair" provision of international accounting standards, which provides that "in the extremely rare
circumstances in which management concludes that compliance" with the rules "would be so misleading that it would
conflict with the objective of financial statements," a company can depart from the rules. 1n the past, that provision has
been rarely used in Europe, and a similar provision in the United States is almost never invoked. One European auditor said
he had never seen the exemption used in four decades, and another said the only use he could recall dealt with an extremely
complicated pension arrangement that had not been contemplated when the rules were written. Some of the people who
wrote the rule took exception to its use by Societe Genera le. "It is inappropriate," said Anthony T. Cope, a retired member
of both the I.A.S.B. and its American counterpart, the Financial Accounting Standards Board. "They are manipulating
earnings."
John Smith, a member of the I.A.S.B., said: "There is nothing true about reporting a loss in 2007 when it clearly occurred
in 2008. This raises a question as to just how creative they are in interpreting accounting rules in other areas." He said the
board should consider repealing the "true and fair" exemption "if it can be interpreted in the way they have interpreted it."
Societe Generate said that its two audit firms, Ernst & Young and Deloitte & Touche, approved of the accounting, as did
French regulators. Calls to the international headquarters of both firms were not returned, and Societe G€n€rale said no
financial executives were available to be interviewed. In the United States, the Securities and Exchange Commission has
the final say on whether companies are following the nation's accounting rules. But there is no similar body for the
international rules, although there are consultative groups organized by a group of European regulators and by the
International Organization of Securities Commissions. It seems likely that both groups will discuss the Societe Genera le
case, but they will not be able to act unless French regulators change their minds. "Investors should be troubled by this in
an I.A.S.B. world," said Jack Ciesielski, the editor of The Analyst's Accounting Observer, an American publication. "While
it makes sense to have a 'fair and true override' to allow for the fact that broad principles might not always make for the best
reporting, you need to have good judgment exercised to make it fair for investors. SocGen and its auditors look like they
were trying more to appease the class of investors or regulators who want to believe it's all over when they say it's over,
whether it is or not." Not only had the losses not occurred at the end of 2007, they would never have occurred had the
activities of Mr. Kerviel been discovered then. According to a report by a special committee of Societe Generale's board,
Mr. Kerviel had earned profits through the end of 2007, and entered 2008 with few if any outstanding positions. But early
in January he bet heavily that both the DAX index of German stocks and the Dow Jones Euro Stoxx index would go up.
Instead they fell sharply. After the bank learned of the positions in mid-January, it sold them quickly on the days when the
stock market was hitting its lowest levels so far this year. In its annual report, Societe Generate says that applying two
accounting rules - IAS 10, 11Events After the Balance Sheet Date," and IAS 39, "Financial Instruments: Recognition and
Measurement" would have been inconsistent with a fair presentation of its results. But it does not go into detail as to why it
believes that to be the case. One rule mentioned, IAS 39, has been highly controversial in France because banks feel it
unreasonably restricts their accounting. The European Commission adopted a "carve out" that allows European companies
to ignore part of the rule, and Societe Generale uses that carve out. The commission ordered the accounting standards board
to meet with banks to find a rule they could accept, but numerous meetings over the past several years have not produced
an agreement. Investors who read the 2007 annual report can learn the impact of the decision to invoke the "true and fair"
exemption, but cannot determine how the bank's profits would have been affected if it had applied the full lAS 39. It appears
that by pushing the entire affair into 2007, Societe Generate hoped both to put the incident behind it and to perhaps deemphasize how much was lost in 2008. The net loss of 4.9 billion euros it has emphasized was computed by offsetting the
2007 profit against the 2008 loss. It may have accomplished those objectives, at the cost of igniting a debate over how well
international accounting standards can be policed in a world with no international regulatory body . . 'iourct'. rh,, New York
Tim('s, 7 1'v1arch 2008, www.ny!irnP~.com.
Questions
1. Outline the events which led to Societe Generate recording a 2008 loss in the company's 2007 accounts. How did the
bank justify its action?
2. On what grounds has the bank's approach been criticised?
3. Evaluate the role of the auditors in this situation.
4. Comment on the implications of this case for the consistent application of IFRS in the European Union and elsewhere.
Conservatism
The matching concept requires a great deal of judgement in determining whether a given amount of cost is applicable to the
future or to the current period. It is noteworthy that accountants demand objective evidence for the recognition of revenue,
but there has been limited discussion of objective evidence in relation to recognising expenses. Instead the plea is for
reasonableness or appropriateness, not for objective evidence. To be reasonable is a virtue, but what is the standard of
reasonableness in applying the matching concept? lt is general acceptance of a procedure. Whatever is deemed acceptable
practice is considered reasonable and appropriate. Por instance, the way to deal with inventories is to expense them by using
one of the accepted methods ( such as FIFO or average cost) and the way to handle plant and equipment is to depreciate
them by using one of the accepted depreciation methods. One reason for the lesser requirement for objective evidence in
recognising expenses as compared with revenues is the convention of conseivatism. This convention calls for the recording
of expenses, losses and liabilities as soon as possible, even though the evidence may be weak; however, it requires that
revenues, gains and assets be supported by more substantial evidence before they are recorded. According to !AS 11/AASB
111 Construction Contracts (para. 22) 'contract revenue and contract costs associated with the construction contract shall be
recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the
reporting date. An expected loss on the construction contract shall be recognised as an expense immediately ... ' So provision
is made for the loss immediately, but not for overall gains of the contract. Although the loss on the entire contract has not
been fully realised because tl1e project is not completed, the total expected loss is to be recognized immediately. This is
true even when the completed contract method is used. Some argue tlrnt conservatism underlies the probability and
reliability criteria espoused in the Framework. The term 'probable' means that a future event is likely to occur to confirm
the loss or expense. Thus, a bad debts expense is recorded because it is probable on the date of the financial statements that
the entity will be unable to collect a certain amount to which it is entitled. This probability is based mainly on past
experience. A loss due to the threat of expropriation is to be recorded if expropriation is imminent and the amount of the
loss is estimable. Imminence may be indicated by public or private declarations of intent by a government. Accrual of a loss
related to litigation, claim or assessment would be required if the probability of the loss is such that the two conditions
mentioned above are met It is argued that, because of conservatism, if it is probable that the value of net assets has decreased,
an expense must be recognised. The kind of evidence required to determine this probability is vague. Conventional treatment
is followed, and convention dictates that one be conservative. The admonition 'anticipate no profits but anticipate all losses'
is commonly followed. The interpretation of the matching concept in practice, therefore, is biased by the effect of the
convention of conservatism. Conservatism does not focus on evidence, but on the fear of overstatement of net assets and
profits. Misleading information can be the result. Under previous Australian guidelines (SAC 4), conservatism was
considered a bias to be avoided. The current Framework is not so explicit, although it does nominate neutrality as a
qualitative cl1aracteristic of financial information. Information with a conservative bias is not neutral information. The
extent to which conservatism is practised through the recognition of provisions has been restricted by the introduction of
!AS 37/AASB 137 Provisions, Contingent Liabilities and Contingent Assets. In addition to the recognition criteria of the
Framework relating to 'probability' and 'reliability', the standard requires an entity to have a present obligation (legal or
constructive J bcrorc recognising a provision (para. 95). thus, a provision cannot be recognised unless the entity cannot
avoid meeting lhc obligation; tbat is, it 'has no realistic alternative to settling tbe obligation' (para. 17). Consequently,
management's ability to create provisions which reduce income in the current period and allow for income to be increased
in future periods, has been curtailed. Provisions such as those for maintenance and restructuring cannot be included in tbe
financial statements unless the recognition criteria are met. Therefore, a provision for maintenance must reflect an obligation
to an external party. A provision for restructuring arises only when a detailed formal plan, meeting certain criteria (para. 72
), has been formulated. In addition, tbe standard states that contingent liabilities cannot be recognised, that is, included in
tbe expense of tbe period (para. 27)." Since tbe contingent liability does not meet recognition criteria, it cannot be recognised
and does not provide a means to overstate expenses and thereby present a conservative view of financial position and
performance.
Issues for auditors
Auditors face issues surrounding the distinction between expenses and assets, the period in which expenses are recognised,
and appropriate measurement of expenses. The definition of expenses in the Frameworli, paragraph 70, as 'decreases in
economic benefits ... in the form of outflows or depletions of assets' focuses attention on the choice between debiting
expenses or assets when recording outflows of assets ( or incurrence of liabilities). The collapse of the US
telecommunications company WorldCom in July 2002 revealed its accountants had been having problems in applying
principles surrounding tbe definition of e,'<penses.18 WorldCom was a major provider of long-distance telephone and
Internet services, growing rapidly during the 1990s through acquisitions of other companies. 19 One accounting irregularity
tbat was revealed after the collapse of WorldCom was inappropriate capitalisation of operating expenses as assets. During
2001 and 2002 the company treated as capital investments US$3.8 billion paid as fees to other telecom companies for the
right to access their networks. 20 The payment of fees for the use of a network represents outflows of assets which should
have been matched with the revenue generated from the provision of telephone and Internet services to customers in the
same period. Treating expenses as assets is a relatively uncomplicated way to overstate profit for the period, and auditors
usually require strong evidence to support capitalisation of expenditure. However, attempts by managers to overstate
expenses ( and understate assets) can also lead to problems for auditors. When accounting for its acquisitions during the
1990s, WorldCom would write down the value of certain assets it acquired.' 1 When assets are recognised at a lower cost,
future depreciation charges are also lower, helping managers to report greater profits. The practice of overstating one-time
charges associated with acquisitions and restructures is known as 'big bath' accounting. WorldCom also appeared to practise
'cookie-jar' accounting by including a charge for future expected company expenses at tbe time of the acquisition. 22 Cookiejar accounting allows for profit to be increased in the future when the charges are reversed on tbe basis of new evidence tbat
original expectations of future costs were too pessimistic. The practices of big bath and cookie-jar accounting violate the
principles of systematic and rational allocation of expenses to the appropriate accounting periods. Auditors could be tempted
to give less attention to the possibility tbat expenses are overstated than understated because of the belief that a conservative
approach to profit measurement is desirable. However, the Framework's nomination of neutrality as a desirable qualitative
characteristic and the introduction of !AS 37/MSB 137 would appear to require auditors to gather sufficient evidence to
ensure that they do not sign off on accounts with overstated expenses. Another difficult area for auditors related to expenses
is accounting estimates, such as provisions for invento1y obsolescence, warranties, losses on lawsuits, and construction
contracts in progress. An accounting estimate means an approximation of the amount of an item in the absence of a precise
means of measurement. 23 Expenses arise from estimates when there is no underlying transaction for a certain amount
which produces a debit that must be classified, such as whether a cash payment results in a debit to expenses or assets.
Auditors have to test the assumptions and processes used by management when arriving at an estimate and consider whether
there is any other evidence to support the reasonableness of the amount claimed. An accounting estimate that created
difficulties for WorldCom was the provision for doubtful debts. WorldCom's many acquisitions created operational
difficulties in merging different billing and customer collection practices and systems. These difficulties resulted in a jump
in the length of time receivables had been on the company's books without collection from an average of 63 days in 1999
to 77 days in June 2000. Evidence subsequently emerged that during this period customer accounts that were known to be
uncollectable were not written off. foinally, in September 2000, WorldCom recognised a bad debt expense of US$685
million which clearly included expenses that should have been recognised in previous periods.
SUMMARY
 The nature of expenses and the way they are defined in the accounting literature The ideal case tells us that expenses
are a monetary event which relates to a decrease in the net assets of the firm. The decrease in value pertains
eventually to the outflow of cash. Although the decrease may be simple to observe and calculate in the ideal
situation, in a world of uncertainty it is not. To render a definition of expenses operational, it must be associated
with a physical activity of the entity, something the entity does. Thus we say, in the earning process, that production
and sales generate revenue and the using up of goods and services in support of those functions causes expenses to
occur. To provide practical guidance, standard setters have defined expenses in terms of decreases in economic
benefits arising from the outflow or depletion of assets or the incurrence of liabilities. Based on this definition,
expenses encompass both expenses and losses incurred in the normal operations of the entity.
 Recognition criteria and the matching concept as they are applied to expenses in the accrual accounting system The
recognition criteria for expenses are consistent with those of the other accounting elements discussed in the
Framework. An expense is to be recognised in the financial statements when it is probable that future economic
benefits associated with the item will flow from the entity, and the item has a cost that can be measured reliably.
The decrease in future economic benefits relates to a decrease in an asset or an increase in a liability. This means,
in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a
decrease in assets. Conventional theory sees revenue as the accomplishment resulting from the efforts expended by
the firm; thus, for any given period, matching effort (expenses) with accomplishment (revenue) yields the net
accomplishment, or periodic profit. This is an imaginative way of visualising the earning process. Even with an
operational definition and an imaginative view of the earning process, recognising expenses in practice is difficult
 without more specific criteria. Accountants use three matching methods: ( 1) associating cause and effect; (2)
systematic and rational allocations; and (3) immediate recognition. Applying the three matching methods is not a
straightforward process and involves a great deal of judgement. In fact, most of the problems of profit determination
have to do with matching. Accruals and deferrals are connected to the matching process. The accountant must decide
whether a cost pertains to future revenues and therefore should be deferred; or whether a cost is related to past
revenues and therefore should be written off against previous profit; or whether a cost, although not yet paid, is
related to current revenues and therefore should be accrued. In making these decisions, official pronouncements by
authoritative bodies, conventions, conse1vatism and expediency play an iinportant role. Some rules are very
specific, such as expensing research costs; others are vague, such as recording a loss if it is 'probable' that a liability
has been incurred.
 Criticisms of the matching process and accountants' use of allocations. The matching process has become an
essential part of accounting practice. However, there are many criticisms of this approach. An emphasis on matching
gives priority to the income statement and reduces the usefulness of the balance sheet which becomes a repository
for unexpired costs. Standard setters have sought to rectify this situation by defining elements of financial statements
in relation to each other and presenting definition and recognition criteria which are consistent with each other. The
matching process requires considerable judgement on the part of financial statement preparers. The doctrine of
conservatism means that expenses, losses and liabilities are recognised as soon as possible, even if evidence for
them is weak. In addition, personal incentives may influence managers' judgement in the allocation process. The
asymmetrical treatment of revenue and expenses may create a conse1vative bias and misleading financial
statements. Matching methods may be difficult LO apply in practice. For example, accountants do not actually
associate cause and effect but rather match costs to intervals of time. The allocation method of assigning costs is
criticised as being theoretically unjustified. Thomas argues that allocations breach criteria such as additivity,

unambiguity and defensibility and that the arbitrary nature of the allocation process reduces the usefulness of
financial statements. He suggests alternative approaches, such as current exit price reports and net quick assets
funds statements. However, standard setters continue to recommend allocation methods, and abandoning this
approach would be a fundamental change from current accounting practice which may not be acceptable in the
financial community.
Challenges for standard setters and issues for auditors relating to expense recognition and measurement. The
Framework provides a basis for determining whether amounts meet the definition and recognition criteria of
expenses. However, judgement is required when deciding whether items represent assets or expenses, the amount
of items and the period in which they should be recognised. In applying the Framework, standard setters argue that
concepts such as 'matching' and 'conservatism' are not helpful if they distort the information presented and thus
reduce its usefulness for decision making. In reality, matching and conseivatism are accounting practices, not
accounting principles. Standard setters argue that financial statement users (current and future investors, lenders
and other creditors) are better served by neutrality (not conservatism), which together with completeness and
accuracy (freedom from error) and relevance form the basis of the fundamental qualitative characteristics of
financial information. A feature of developed capital markets is the range of contracts which exist between managers
and capital providers. Contractual arrangements can provide incentives which may influence managers' decisions
about the recognition of expenses, as shown in the WorldCom case discussed in the chapter. Auditors have a key
role in ensuring that financial statements comply with the requirements of accounting standards and are not distorted
by inaccurate recognition of expenses.
Problems
For Ryder Ltd for the financial year 1 January to 31 December 2009, record all necessary journal entries relating to the
selected events described. Use generally accepted accounting principles. The records are still open on 31 December
2009.
1. On 2 January, Ryder Ltd granted certain executives options to purchase 10 000 shares of its ordinary share capital at
$180 per share in exchange for services to be performed over the next 3 years. The quoted market price of the shares on
2 January was $175 per share. The executives believe that the market price is likely to rise to $250 per share over the
next 3 years.
2. On 1 July, Ryder Ltd acquired a patent on a product with a remaining legal life of 15 years. The estimated economic
life of the patent on the acquisition date was eight years. The cost of the patent was $64 000.
3. Ryder Ltd developed a process in 2009 on which it received a patent on 1 October. In 2011, developmental costs of
the process amounted to $140 000. Legal fees to obtain the patent were $13 600. Ryder Ltd decided that the legal life
of 20 years approximated its economic life.
4. In December 2009, Ryder Ltd acquired all the shares of Victorian Communications Ltd, publisher of the Victorian
News. The excess of cost over the foir value of the net assets of the company was $80 000. This amount of goodwill
was attributable to the newspaper's established circulation list, the editorial reference libr,11y, established news
development resources, community loyalty and established advertising clients. The consolidated financial statements
do not include any impairment of the goodwill.
5. Ryder Ltd acquired five heavy trucks in 2007 for $35 000 each. Based on a 5-year study, it was decided that the total
kilometres driven for each truck over its useful life of 5 years would be 200 000 km. The residual value of each was
estimated to be $5000. The company decided to use the units-of-service (output) method for the trucks in determining
depreciation. The actual total kilometres driven for the five trucks in 2009 were 120 000 km. Other equipment which
was purchased in 2007 with an original cost of $5 000 000 is being depreciated by the straight-line method over a useful
life of 10 years. No residual value is expected. Because of a labour dispute, the plant was shut down between 1 August
and 30 October. The equipment and trucks were not used during that time.
6. Ryder Ltd had the exterior of its office building painted in November. The cost was $20000.
7. An unusual storm, which Ryder Ltd believes is not likely to recur in the foreseeable future, occurred in February. The
storm caused extensive damage to the office building. The loss was $50 000. This amount is over and above the amount
received frmn the insurance company.
8. On 1 January 2007, Ryder Ltd acquired a warehouse at a cost of $150 000. The company adopted the straight-line
method of depreciation and has been recording depreciation over an estimated economic life of 10 years with no residual
value. At the beginning of 2009, a decision was made to adopt the diminishing-balance method of depreciation for the
warehouse. Due to an oversight, however, the straight-line method was used for 2009.
9. A lawsuit against the company which was initiated in 2008 was settled out of court. Ryder Ltd paid the plaintiff $125
000.
10. Ryder Ltd acquired its factory building on 2 January 1999 for $300 000. At that time the useful life was estimated
to be 20 years. At the beginning of 2009, it was decided that the useful life on the acquisition date should have been 30
years.
11. From September 2009 to December 2009, one of the company's major products was advertised on television. The
cost of these one-minute commercials was $200 000. The company experienced a dramatic increase in the sale of this
product. It is believed that the larger amount of sales will continue indefinitely because the commercials have made the
product better known to the public.
12. Ryder Ltd sells a product with a one-year warranty. On 31 December 2009, the company estimated that the cost of
repairs for the items sold in 2009 but to be returned for repairs in 2012 would be $68 000.
13. In October, Ryder Ltd agreed to purchase 7500 tonnes of material in 2010 at the fixed price of $100 per tonne. The
contract is not subject to cancellation. On 31 December 2009, the replacement cost of the materials was $88 per tonne.
14. One of Ryder Ltd's divisions is in the construction business. The following information relaLes to one of its projects,
started in 2009:
Total contract price=520.000
Billings=350.000
Costs incurred=424.000
Estimated additional costs to complete the project=106.000
The division uses the completed contract method.
15. Ryder Ltd acquired a new machine by trading in a similar machine. The old machine originally cost $90 000 and
had accumulated depreciation of $20 000 at the date of exchange. The new machine could have been purchased for $50
000 cash. Ryder Ltd received $5000 also on the exchange.
16. Ryder Ltd has just learned that one of its customers, Dayton Ltd, has declared bankruptcy. Dayton Ltd owes $60
000 to Ryder Ltd. IL does not appear that Ryder Ltd will receive anything. This amount constitutes 40% of the ending
balance of Accounts Receivable.
17. One of Ryder Ltd's divisions received a donation consisting of 3 hectares of land with an old building on it. The
intention is for the company to build a manufacturing plant on the land. On 2 Januaiy 2009, when the company took
title to the property, the appraised value of the land was $3 00 000 and of the building was $100 000. The building's
useful life at that time was 10 years. The company is using the building for the storage of a variety of items.
Mangold Ltd received several donations. Record the journal entries for the following events:
1. Cash of $10 000 is received from a shareholder as a donation.
2. The cash donation is used to pay salaries and wages expenses.
3. Equipment is received at the beginning of the year from Lin Pty Ltd as a donation. The fair value is $20 000. The
carrying amount for Lin Pty Ltd is $15 000. Estimated useful life at the time of receipt of the equipment is 10 years.
4. The equipment received from Lin Pty Ltd is used in operations for the year.
5. Land is received from a shareholder as a donation. The fair value is $50 000.
6. The land is sold for $55 000.
The Flying Fox Group of companies owns the tollway from the centre of a major city to the airport. Under the agreement
with the state government, Flying Fox must upgrade the road every 10 years. Flying Fox has established a provision
account to allocate the future cost of upgrading the road over the next 10 years. Outline the accounting entries to provide
for such a provision. ls this approach consistent with the matching principle? How does this approach relate to !AS
16/AASB ll6 Property, Plant and Equipment and !AS 3 7 / AASB 137 Provisions, Contingent Liabilities and Contingent
Assets?
Current developments in environmental issues
Accounting for emission allowances
Emissions allowances are credits or allowances lhal a company receives from a regulalory agency that represent the
"right" to emit a specified amount of pollution. Emission allowances arise as a consequence of emission trading
programs. Emission trading programs are widely used by governments in an effort lo regulate the emissions of a variety
of pollutants, including greenhouse gases. For example, in the U.S. sulfur dioxide emission credits are issued by the
Environmental Proteclion Agency (EPA) in compliance with the Clean Air Act. Similar emission trnding programs
targeted al reducing greenhouse gasses exist globally and are becoming increasingly popular. In an emission trading
program the government sets a limit on the amount of pollution that a company (or company group) can emit.
Companies are given credits or allowances that permit them to emit a specified amount of pollulion in cmy given year.
Once issued, these allowances can be sold or traded if, for example, in any given year a company's emissions are low
and they do not need all of their credits. A company with excess emissions has the choice of paying a fine or purchasing
unused credits from another company. In this example, the company with unused credits may sell its credits to the
company with excess emissions. These programs have become a popular ,neans of controlling emission of pollut<mls
since, in effect, lhey reward low polluters and fine excess polluters. Based on supply and demand, if a large number of
firms need to buy allowances, the demand for allowances will increrise and the price will go up. Theoretically, at some
point it becomes cheaper for a company to reduce emission of greenhouse gasses than to continue lo purchase
allowances. One popular trading program is referred to as a "cap-and-trade" program where the regulatory agency
establishes the amount of permissible emissions per plant. The plant owners are given a number of allowances, typically
denominated in tons of emissions per year. The allowances become immediately lradeable, and companies musl decide
whether lo buy, sell, or hold their allowances. Al the encl of the year (or lhe allowance period) companies must report
their actual emissions and deliver a sufficient number of allowances to cover the emissions or pay a fine. Typically
allowances are only good for a specific year and cannot be banked by a company to be used in future years when their
pollution levels are higher.
Emission credits are lr.ided in e:,;tablishcd market:,;. One of the mosl active markets in the U.S. is the over-the-counter
market for sulfur dioxide credits established under the Clean Air /\cl. Emis:,;ion trading markets Me also prominent
outside the U.S. For example, in the European Union (EU) each country in the EU is c1llocated allowances for
greenhouse gas emissions within ils borders, and there is an aclivc market for carbon dioxide allowances. Currently in
the U.S., financial accounting for emission allowances is on an accrual basi:,;. When !he allowances are issued by the
regulatory agency they have zero cost basis to the reporting entily. If lhe entity purchases allowances in the market, the
allowances are recorded as 11c1llowances inventory" using the lower of cost or market valuation approach. Sales of
allowdnces result in recognition of gains or losses. For example, if an entity reccivt'S ·100 allowances from the
government and purchases an additional 50 ,,llowances for $3000 each, the total cost of the 150 allowances is $150000.
Each ,,llowance has an average cost of$ 150 000/150 ~ $ IOOO. If the entity sells an allowance for $4000, $ I 000 is
charged to expense and a profit of $3000 is recognized. If the entity uses all of the allowances, the full $150 000 is
charged to expense. Upon issuance of Statement No. 153, "Exchanges of Nonmonelary Assets" the FASB received
numerous queslions regarding whether emission allowances should be accounted for al fair value and whether
ollowances are properly accounted for as inventory. The Emerging Issues Taskforce put the topic on its agenda but later
removed it ciling the need for a comprehensive examination of all or the accounling issues related to the allowances
and lo the cost of pollution. The IASB faces similar issues. The International Financial Reporting Interpretations
Commitlee (IFRIC) originally issued an interpretation entitled 11Emission Rights" wherein allowances <1re accounted
for al fair value and systematically recognized in income over the period in which the rights accrue. Recently this
interpretation was withdrawn. Both the IASB and the FASB have concluded that there is a need for a comprehensive
model of accounting for emission trading programs, and both boards have added the topic to their respective agendas.
The projects iliclude questions regarding liability c1ccrual al the time pollution emissions occur.
Accounling for frequenl flyer points: fact or fiction?
Accounting requirements under IFRS have changed the way airlines account for frequent flyer points. In the past,
deferred cost accounting practices were used. Under this method, the upfront sale of points to banks, credit card
companies, morlgage brokers and general retailers was recorded as revenue in the income statement al the lime of sale.
The expense related to the sale, that is lhe cost of travel, WJS recorded al a later period, when the c1irline provided the
travel service, or gave up the 'free' seal. The Australian Financial /~eview (AFR) reported in December 2004 that the
sale of points lo third parties, rather thc1n giving them away lo loyal customers, made the schemes profitable for Qantas
and major network carriers in the United States and Europe. The newspaper claimed lhal when Qantas sought additional
debt or equity capital, it would have to treal ils frequent flyer point liability on the same basis as other global firrns, in
the name of equality and transparency. Qantas responded immediately to the AF/< article. The company staled that it
establishes a liability and takes a charge lo the profit and loss account for the cost of providing a 'free' seat at the time
the frequent flyer revenue is received, not when Qantas gives up the 'free' seat (the cost/provision approach). The
company said it complies with Australian accounting standards and would comply with international accounling
standards when they were introduced. ll would not have to change its accounting practices when it next sought to raise
capital. From 1 July 2008 Qantas must apply Ir-RIC ·13 Cu;IQmer Loyalty Programmes. The interpretation applies to
the recognition and measurement of obligations to supply goods and services to customers if they redeem 'award' points.
IFRIC 13 requires the deferred revenue approach. Building on IAS ·w paragraph 3, the interpretalion views awards
granted as separately identifiable components of an initial transaction (in Qantas's case, the sale of an airline ticket).
The ticket sale is splil into lwo componenls, the provision of service and lhe associated award. The revenue allocated
lo the award is deferred J.nd recognised when the award is redeemed. The award is to be measured at fair value and
measureffient guidance is included in the interpretation.
**BAB 10 (BIAYA)**
Entitas bisnis terlibat dalam berbagai kegiatan yang menghasilkan pendapatan yang dapat menimbulkan biaya.
Menentukan jumlah biaya yang benar untuk dicatat dalam periode akuntansi sangat penting, karena mempengaruhi
posisi keuangan dan kinerja yang dilaporkan oleh perusahaan. Namun, menghitung jumlah biaya dan kapan biaya
tersebut harus diakui bukanlah proses yang sederhana. Pada bagian pertama bab ini, kami menjelajahi sifat biaya dan
definisi yang disajikan dalam literatur. Kami membahas definisi yang diberikan oleh pembuat standar tentang biaya dan
menjelaskan hubungan antara biaya dan kerugian. Biaya mewakili baik peningkatan kewajiban atau penurunan aset,
dengan efek selanjutnya pada ekuitas. Kami menjelaskan bagaimana definisi ini diterapkan dalam praktik dan
membahas pandangan perilaku tentang biaya. Kriteria pengakuan untuk biaya adalah dasar bagi praktik akuntansi. Pada
bagian kedua bab ini, kami membahas panduan yang diberikan dalam Kerangka IASB/AASB dan standar akuntansi
untuk pengakuan dan pengukuran biaya. Kami mengeksplorasi bagaimana biaya ditentukan menggunakan pendekatan
pencocokan. Metode alokasi biaya (asosiasi sebab dan akibat, alokasi sistematis dan rasional, dan pengakuan segera)
diuraikan. Praktik yang ada, seperti pencocokan dan konservatisme, menimbulkan masalah bagi pembuat standar
akuntansi dan auditor. Kami membahas isu-isu terkini bagi pembuat standar dan auditor di dua bagian terakhir bab ini.
**DEFINISI BIAYA**
Diskusi tentang aset, kewajiban, dan ekuitas, serta pendapatan (bab 7, 8, dan 9) memberikan beberapa latar belakang
untuk memahami sifat biaya. Kami tahu bahwa biaya berkaitan dengan penurunan nilai perusahaan. Biaya yang timbul
dalam kegiatan biasa termasuk, misalnya, biaya penjualan, gaji, dan depresiasi. Biaya biasanya berupa aliran keluar
atau pengurangan aset seperti kas dan setara kas, persediaan, dan properti, pabrik, dan peralatan (Kerangka, paragraf
78). Dalam paragraf 70 Kerangka, biaya didefinisikan sebagai berikut:
Biaya adalah penurunan manfaat ekonomi selama periode akuntansi dalam bentuk aliran keluar atau pengurangan aset
atau timbulnya kewajiban yang mengakibatkan penurunan ekuitas, selain yang berkaitan dengan distribusi kepada
peserta ekuitas.
Biaya mencakup kerugian serta biaya yang timbul dalam kegiatan biasa entitas. Kerugian dapat atau tidak dapat timbul
dalam kegiatan biasa entitas. Namun, Kerangka menyatakan bahwa kerugian mewakili penurunan manfaat ekonomi
dan oleh karena itu tidak berbeda dalam sifatnya dari biaya lainnya. Oleh karena itu, mereka tidak dianggap sebagai
elemen terpisah (paragraf 79). Perusahaan telah berusaha untuk membedakan antara biaya dan kerugian yang terjadi di
dalam dan di luar kegiatan biasa dengan mengkategorikan item sebagai abnormal atau luar biasa dalam laporan laba
rugi. Praktik ini tidak diizinkan dalam Penyajian Laporan Keuangan. Paragraf 85 menyatakan bahwa entitas tidak boleh
menyajikan item pendapatan atau biaya sebagai item luar biasa, menekankan definisi biaya yang mencakup semua
dalam Kerangka.
Pandangan yang diwakili dalam Kerangka IASB/AASB berbeda dari yang dipromosikan oleh Dewan Standar Akuntansi
Keuangan (FASB), pembuat standar AS. Pernyataan Konsep No. 6 (paragraf 68-9) membedakan antara biaya dan
kerugian. Yang terakhir adalah penurunan aset bersih dari "transaksi perifer atau insidental" dan dari peristiwa lain yang
mungkin sebagian besar berada di luar kendali perusahaan. Biaya berkaitan dengan operasi utama atau sentral yang
sedang berlangsung. Menarik untuk dicatat poin yang dibuat oleh Henderson, Peirson, dan Brown mengenai dikotomi
ini:
Perbedaan FASB antara biaya dan kerugian tampaknya tidak terlalu berguna. Ini memerlukan penilaian tentang apakah
suatu transaksi merupakan bagian dari "operasi utama atau sentral" entitas. Tidak perlu membedakan antara biaya dan
kerugian memiliki keuntungan yang jelas ... manajemen tidak akan dapat memutuskan bahwa aliran keluar aset adalah
kerugian dan mengabaikannya dari perhitungan laba operasional.
Perbedaan antara kerangka FASB dan IASB akan menjadi subjek diskusi saat dewan berusaha untuk menyatukan
kerangka dan standar mereka. Revisi dan perpanjangan substansial terhadap Kerangka IASB sedang dilakukan.
**Perubahan dalam Aset dan Kewajiban**
Seperti yang dibahas dalam bab 7 dan 8, pendapatan dan biaya secara langsung terkait dengan aspek nilai dari aset dan
kewajiban. Secara alami, pendapatan dan biaya muncul karena peristiwa (yaitu, peningkatan nilai kewajiban atau
penurunan nilai aset) dalam operasi bisnis. Dalam kenyataannya, peristiwa yang meningkatkan aset dan mengurangi
kewajiban mungkin sulit untuk diamati. Apa yang membuat definisi biaya operasional adalah konsep aliran fisik yang
melibatkan entitas, sehingga definisi Kerangka merujuk pada aliran keluar atau pengurangan aset atau timbulnya
kewajiban.
Definisi Kerangka tidak menyebutkan hubungan biaya dengan pendapatan, meskipun keduanya didefinisikan dalam hal
manfaat ekonomi masa depan. Meskipun pendapatan dan biaya terjadi saat perusahaan melakukan kegiatan yang akan
menghasilkan laba, lebih baik untuk mengaitkan pendapatan dengan peristiwa aktual produksi dan penjualan dan
mengaitkan biaya dengan penggunaan barang atau jasa untuk mendukung peristiwa tersebut, daripada dengan peristiwa
itu sendiri. Definisi dalam Kerangka semuanya berputar di sekitar manfaat ekonomi masa depan, sehingga memastikan
konsistensi mereka, menggunakan definisi aset sebagai titik referensi. Studi kasus 10.1 mengeksplorasi isu-isu yang
berkaitan dengan emisi karbon dan mempertimbangkan apakah aliran masuk atau keluar manfaat ekonomi diharapkan
di bawah skema perdagangan.
**Biaya dan 'Biaya'**
Kerangka menyiratkan bahwa penggunaan aset menimbulkan biaya bagi entitas. Ini sejalan dengan argumen
sebelumnya bahwa biaya mewakili perubahan nilai. Perubahan nilai mengacu pada pengorbanan yang harus dilakukan
perusahaan dalam memperoleh layanan. Jika tidak ada biaya bagi perusahaan, maka tidak ada biaya. Misalnya, jika
seorang karyawan memberikan layanan tanpa dibayar, mungkin untuk mendapatkan pengalaman, tentu saja perusahaan
tidak boleh mencatat biaya gaji. Jika sebuah mesin disumbangkan kepada perusahaan dan meskipun aset tersebut akan
dinyatakan pada nilai wajar, secara teoritis tidak benar, di bawah akuntansi biaya historis, bagi perusahaan untuk
mencatat depresiasi. Terkadang biaya disebut sebagai 'biaya yang telah kedaluwarsa'. Misalnya, sebuah komite khusus
dari American Accounting Association (AAA) pada tahun 1957 menyajikan definisi berikut:
Biaya adalah biaya yang telah kedaluwarsa, secara langsung atau tidak langsung untuk periode fiskal tertentu, dari aliran
barang atau jasa ke pasar dan operasi terkait. Setelah kami menentukan apakah aliran keluar adalah biaya bagi
perusahaan, langkah selanjutnya adalah memutuskan kapan biaya tersebut harus diakui. Kerangka menetapkan dua
kriteria untuk pengakuan biaya dalam paragraf 83:
Sebuah item yang memenuhi definisi elemen harus diakui jika:
(a) ada kemungkinan bahwa manfaat ekonomi masa depan yang terkait dengan item tersebut akan mengalir ke atau dari
entitas; dan
(b) item tersebut memiliki biaya atau nilai yang dapat diukur dengan andal.
Agar biaya diakui dalam laporan keuangan, ia harus memenuhi kedua kriteria pengakuan. Pertama, harus 'kemungkinan'
bahwa aliran keluar manfaat ekonomi masa depan telah terjadi. Kerangka menyatakan bahwa konsep kemungkinan
sejalan dengan ketidakpastian yang menjadi ciri lingkungan di mana entitas beroperasi. Penilaian tentang derajat
ketidakpastian yang melekat pada aliran manfaat ekonomi masa depan harus dilakukan berdasarkan bukti yang tersedia
saat laporan keuangan disusun (paragraf 85).
Jika kriteria kemungkinan diinterpretasikan sebagai lebih atau kurang dari 50 persen, penerapannya bisa bertentangan
dengan karakteristik kualitatif kehati-hatian (Kerangka, paragraf 37). Kehati-hatian adalah 'penyertaan derajat
kewaspadaan dalam pelaksanaan penilaian yang diperlukan dalam membuat estimasi yang diperlukan di bawah kondisi
ketidakpastian, sehingga aset atau pendapatan tidak dinyatakan berlebihan dan kewajiban atau biaya tidak dinyatakan
kurang'. Ingatlah bahwa karakteristik kualitatif lainnya, netralitas, mengharuskan informasi dalam laporan keuangan
bebas dari bias (paragraf 36). Dengan demikian, penyusun laporan idealnya harus melakukan kewaspadaan dalam
penilaian dan estimasi mereka, tetapi tidak menciptakan bias dalam informasi yang dilaporkan. Misalnya, pernyataan
biaya yang berlebihan mencerminkan kehati-hatian yang berlebihan dan kurangnya netralitas tidak akan dapat diterima
karena informasi tersebut tidak dapat diandalkan.
Kriteria kedua mengharuskan bahwa biaya dapat 'diukur dengan andal'. Ini memberikan kasus di mana estimasi
diperlukan (misalnya, biaya depresiasi, penyisihan untuk piutang tak tertagih) tetapi bukti yang tepat untuk mendukung
validitas estimasi tersebut akan diperlukan. Kerangka, paragraf 31, menunjukkan bahwa informasi dapat diandalkan:
ketika bebas dari kesalahan material dan bias dan dapat diandalkan oleh pengguna untuk mewakili dengan setia apa
yang diklaimnya atau dapat diharapkan untuk diwakili.
Kerangka menunjukkan bahwa biaya harus diakui dalam laporan laba rugi ketika penurunan manfaat ekonomi masa
depan terkait dengan penurunan aset atau peningkatan kewajiban telah terjadi dan dapat diukur dengan andal (paragraf
94). Ini berarti, pada dasarnya, bahwa pengakuan biaya terjadi secara bersamaan dengan pengakuan peningkatan
kewajiban atau penurunan aset. Misalnya, perubahan nilai aset menghasilkan biaya depresiasi, amortisasi, atau
penurunan nilai. Perubahan nilai kewajiban untuk manfaat karyawan menghasilkan keuntungan atau kerugian yang
harus dimasukkan dalam pendapatan. Dari sudut pandang pembuat standar, biaya atau kerugian muncul setelah
perubahan nilai aset atau kewajiban. Dalam praktiknya, menentukan kapan harus mengakui biaya atau kerugian dapat
menjadi subjek perdebatan. Studi kasus 10.2 menyajikan materi tentang pengakuan pendapatan, biaya, dan kewajiban
terkait dengan program frequent flyer maskapai penerbangan. Kasus ini menunjukkan bahwa praktik yang diterima
untuk akuntansi poin frequent flyer telah berubah seiring waktu, paling baru sebagai respons terhadap panduan dari
IFRIC (komite interpretasi standar IASB).
**PENGUKURAN BIAYA**
Pengukuran penambahan kewajiban dan pengurangan aset dalam periode saat ini mungkin tampak sebagai tugas yang
sederhana. Namun, kewajiban dapat meningkat karena akuisisi peralatan operasional kunci dalam periode saat ini
dengan perkiraan masa operasi selama bertahun-tahun. Investasi dapat dilakukan dalam periode saat ini pada ternak
yang tidak akan mencapai kematangan dan kemudian menghasilkan pendapatan selama beberapa tahun. Ini berarti
bahwa dalam mengukur biaya dalam periode saat ini, sejumlah keputusan perlu dibuat tentang bagaimana biaya harus
dialokasikan di seluruh periode mendatang dari pendapatan yang dihasilkan. Ada sejumlah standar akuntansi yang
memberikan panduan tentang masalah tersebut, tetapi menawarkan pilihan dalam metode alokasi biaya dan pendapatan.
Misalnya, IAS 16/AASB 116 Aset Tetap memungkinkan nilai aset yang dapat disusutkan diukur dengan beberapa cara
setelah pengakuan (misalnya, model biaya atau model penilaian) dan untuk beberapa opsi depresiasi alternatif
(misalnya, metode garis lurus, nilai menyusut, dan metode unit produksi). Kriteria keputusan dimaksudkan untuk
didukung oleh konsep akuntansi akrual pencocokan biaya terhadap pendapatan dalam periode yang relevan.
Kompleksitas proses ini dan diskresi yang mendasari adopsi teknik alokasi dan pengukuran adalah isu utama bagi
mahasiswa akuntansi dan menjadi fokus bagian ini.
**Alokasi Biaya**
Salah satu pendekatan untuk mengukur biaya adalah mengalokasikannya ke periode yang relevan. Konsep pencocokan
menjadi dasar akuntansi akrual. Kerangka IASB/AASB mengakui konsep pencocokan dalam paragraf 95 yang
menyatakan 'Biaya diakui dalam laporan laba rugi berdasarkan asosiasi langsung antara biaya yang dikeluarkan dan
penghasilan dari item pendapatan tertentu'. Proses pencocokan melibatkan pengakuan simultan atau gabungan dari
pendapatan dan biaya yang dihasilkan secara langsung dan bersama dari transaksi atau peristiwa yang sama. Misalnya,
berbagai komponen biaya yang membentuk biaya penjualan diakui pada saat yang sama dengan pendapatan yang
dihasilkan dari penjualan barang (paragraf 95).
Bagi banyak akuntan, mengaitkan usaha (biaya) dan pencapaian (pendapatan) untuk periode tertentu adalah fungsi
utama akuntansi. Namun, dalam praktiknya, pencocokan yang tepat adalah tugas yang sulit, dan melibatkan banyak
penilaian dari pihak akuntan. Akuntan harus mengidentifikasi aset mana yang telah digunakan (kedaluwarsa) dan jumlah
yang harus dicatat sebagai biaya terhadap pendapatan untuk periode tersebut. Paton dan Littleton menyatakan:
Masalah pencocokan yang tepat antara pendapatan dan biaya pada dasarnya adalah menemukan dasar asosiasi yang
memuaskan - petunjuk tentang hubungan yang menyatukan pengurangan pendapatan dan pendapatan ... Koneksi fisik
yang dapat diamati sering kali memberikan cara untuk melacak dan menetapkan. Namun, harus ditekankan bahwa tes
esensial adalah kewajaran, dalam cahaya semua kondisi yang relevan, daripada pengukuran fisik. Memang, konsep
pencocokan sangat penting dalam akuntansi biaya historis. Ini membimbing akuntan dalam memutuskan biaya mana
yang harus dibebankan dan dicocokkan dengan pendapatan untuk periode tersebut, dan biaya mana yang tetap tidak
kedaluwarsa, untuk dicatat sebagai aset di neraca. Untuk mengatasi masalah yang terkait dengan menentukan dan
mengukur biaya yang harus dibebankan dan yang harus dibawa ke depan, tiga metode dasar pencocokan biasanya
diandalkan. Ini adalah:
• mengasosiasikan sebab dan akibat
• alokasi sistematis dan rasional
• pengakuan segera. Sebuah contoh alokasi biaya yang sewenang-wenang berdasarkan waktu adalah amortisasi
goodwill. Sebelum adopsi luas standar IASB pada tahun 2005, banyak entitas mengamortisasi goodwill selama 20 tahun
atau kurang, sering kali dengan basis garis lurus. Beberapa perusahaan berargumen bahwa goodwill tidak menurun
nilainya, dan oleh karena itu tidak seharusnya dikenakan amortisasi. Mulai 1 Januari 2005, IFRS tidak mengharuskan
goodwill untuk diamortisasi, sehingga menghindari asumsi sewenang-wenang yang digunakan dalam proses amortisasi.
IFRS 3/AASB 3 Kombinasi Bisnis paragraf 54 menyatakan bahwa, setelah akuisisi, goodwill yang diperoleh dalam
kombinasi bisnis akan diukur pada biaya dikurangi kerugian penurunan nilai. Dengan demikian, proses estimasi untuk
menentukan amortisasi goodwill tidak lagi diperlukan. Namun, entitas harus menilai setiap tahun sejauh mana goodwill
telah mengalami penurunan nilai (atau berkurang nilainya), yang merupakan jenis estimasi lainnya. Sebuah area di mana
alokasi saat ini digunakan adalah terkait dengan pembayaran berbasis saham. IFRS 2/AASB 2 Pembayaran Berbasis
Saham mengharuskan bahwa perusahaan mencatat biaya terkait dengan semua remunerasi yang diberikan kepada
karyawan, baik dalam bentuk kas, aset lain, atau instrumen ekuitas entitas. Tiga bentuk pembayaran berbasis saham
diidentifikasi. Ini adalah:
1. pembayaran berbasis saham yang diselesaikan dengan ekuitas (entitas menerima barang dan jasa sebagai imbalan
untuk instrumen ekuitasnya sendiri)
2. pembayaran berbasis kas yang diselesaikan (entitas memperoleh barang dan jasa dengan menanggung kewajiban
untuk jumlah yang didasarkan pada nilai instrumen ekuitasnya sendiri)
3. transaksi lain (entitas menerima atau memperoleh barang dan jasa dan entitas, atau pemasok, memiliki pilihan apakah
transaksi diselesaikan dalam bentuk kas atau instrumen ekuitas).
Barang dan jasa yang diterima dalam transaksi pembayaran berbasis saham harus diakui saat diterima (IFRS 2, paragraf
7). Peningkatan ekuitas yang sesuai dicatat untuk rencana yang diselesaikan dengan ekuitas dan peningkatan kewajiban
diakui untuk pembayaran yang diselesaikan dengan kas.
Rencana yang diselesaikan dengan ekuitas paling umum diamati (misalnya, di Inggris dan Australia, sebagian besar
rencana diselesaikan dengan ekuitas, bukan kas). Barang dan jasa yang diterima dalam transaksi pembayaran berbasis
saham yang diselesaikan dengan ekuitas dan peningkatan ekuitas yang sesuai harus diukur pada nilai wajar barang atau
jasa yang diterima, kecuali nilai tersebut tidak dapat diukur dengan andal (IFRS 2, paragraf 10). Nilai wajar barang dan
jasa yang diterima biasanya diukur dengan merujuk pada nilai wajar instrumen ekuitas yang diberikan, pada tanggal
pemberian. Nilai wajar harus didasarkan pada harga pasar (IFRS 2, paragraf 11) tetapi jika harga tersebut tidak tersedia,
maka model penetapan opsi (seperti Black-Scholes-Merton atau model binomial) harus digunakan. Dengan demikian,
rencana berbasis ekuitas menghasilkan aset atau biaya dan peningkatan ekuitas yang sesuai (sehubungan dengan saham
yang diterbitkan). Jika instrumen ekuitas tersebut segera jatuh tempo, biaya terkait dengan barang dan jasa yang
diberikan diakui segera dan ada peningkatan ekuitas yang sesuai. Namun, jika instrumen ekuitas tersebut tidak jatuh
tempo sampai kondisi tertentu terpenuhi (seperti penyelesaian periode layanan, atau peningkatan harga saham entitas),
maka nilai wajar barang dan jasa yang diterima dicatat selama periode vesting. Artinya, proses alokasi digunakan untuk
membagi biaya remunerasi (nilai wajar barang dan jasa yang akan diterima) selama periode vesting. Misalnya, jika nilai
wajar pada tanggal pemberian dari opsi yang diterbitkan kepada karyawan adalah $12.000 dan periode vesting adalah
empat tahun, maka biaya sebesar $3.000 akan diakui di setiap tahun selama empat tahun tersebut. Teori dalam praktik
10.1 mengeksplorasi isu-isu yang berkaitan dengan akuntansi untuk rencana pembayaran berbasis saham dan teori
dalam praktik 10.2 mengeksplorasi efektivitas mereka sebagai alat motivasi.
CEO ANZ John McFarlane menerima total gaji yang ditunjukkan dalam laporan tahunan kemarin sebesar $7,2 juta.
Namun, angka ini jauh lebih kecil dibandingkan dengan keuntungan $19,7 juta yang diterimanya dari pencairan opsi
sepanjang tahun.
Ukuran besar pembayaran opsi yang dinikmati oleh Mr. McFarlane menyoroti kesenjangan besar antara perlakuan
akuntansi dan kenyataan - dengan $2,1 juta yang ditunjukkan sebagai "pembayaran berbasis saham" dalam total gaji
Mr. McFarlane, kontras dengan manfaat $19,7 juta yang sebenarnya ia nikmati.
Ini juga bertentangan dengan saran bahwa Mr. McFarlane tidak menerima kenaikan gaji, meskipun total gajinya
dilaporkan meningkat kurang dari 1 persen dari angka tahun lalu.
Untuk kredit ANZ - tidak seperti banyak rekan-rekannya di ASX 50 - keuntungan dari transaksi opsi tersebut cukup
jelas diuraikan dalam laporan tahunan. Namun, ANZ masih kurang dari praktik pengungkapan AS yang menunjukkan
harga akhir tahun untuk satu juta opsi yang telah jatuh tempo (yang berarti Mr. McFarlane dapat mencairkannya kapan
pun ia mau). Opsi ini bernilai $10,1 juta lagi bagi Mr. McFarlane pada 30 September. Pada tanggal yang sama, kepala
bank tersebut memegang lebih dari 2 juta saham ANZ senilai $55,7 juta. Sydney Morning Herald sebelumnya telah
menyoroti kurangnya pengungkapan yang berarti dalam banyak laporan tahunan transaksi opsi besar oleh CEO di
perusahaan-perusahaan terbesar Australia. Dalam beberapa kasus, termasuk McFarlane, kesepakatan tersebut lebih dari
dua kali lipat total gaji eksekutif. Khususnya, CEO yang sudah mapan di perusahaan yang cukup sukses tampaknya
menikmati manfaat akhir karir dari serangkaian rencana kepemilikan saham yang menghasilkan pembayaran besar. Mr.
McFarlane telah menjadi CEO sejak Oktober 1997, dengan kontrak perpanjangan yang berakhir pada bulan September
tahun depan. Pada hari Senin, Herald mengungkapkan bahwa CEO Westpac David Morgan menerima pembayaran tunai
sebesar $3,8 juta ketika ia melaksanakan 250.000 "hak apresiasi saham" dari rencana saham 1997. Keuntungan dari
transaksi ini tidak diungkapkan dalam laporan tahunan, dan tidak diungkapkan kepada bursa saham. Ini di luar
keuntungan $6,3 juta yang diterima Mr. Morgan dari pelaksanaan opsi. Sekali lagi, pembayaran berbasis saham tersebut
jauh lebih besar daripada total gaji yang dilaporkan sebesar $8,4 juta. Dalam kasus Mr. McFarlane, ia melaksanakan 2
juta opsi yang memenuhi hambatan kinerja ANZ yang mengalahkan indeks bank ASX 200 dan mengalahkan indeks
ASX 100, sejak penerbitannya. Ia juga memenuhi syarat untuk 175.000 saham kinerja.
**Pertanyaan**
1. Sejak tahun 2005, IFRS 2/AASB 2 mengharuskan perusahaan untuk mencatat biaya terkait dengan rencana opsi
saham. Jelaskan persyaratan IFRS 2/AASB 2 dan bagaimana mereka berbeda dari persyaratan sebelumnya. (Mahasiswa
perlu berkonsultasi dengan sumber tambahan. Lihat daftar di akhir bab ini.)
2. Berikan gambaran umum tentang keuntungan dan kerugian dari persyaratan IFRS 2/AASB 2.
3. Artikel tersebut menyatakan bahwa eksekutif tertentu mendapatkan jauh lebih banyak dari rencana opsi daripada
yang ditunjukkan dalam akun perusahaan mereka. Misalnya, CEO ANZ mendapatkan $19,7 juta dari pencairan opsi,
tetapi gajinya ditunjukkan sebesar $7,2 juta dalam laporan tahunan 2006. Mengingat bahwa IFRS 2 mengharuskan
pencatatan biaya untuk pembayaran berbasis saham, jelaskan bagaimana hal ini bisa terjadi.
4. Mengingat jawaban Anda untuk pertanyaan 3, apakah Anda mempertimbangkan bahwa persyaratan IFRS 2 harus
diubah? Mengapa atau mengapa tidak?
**Rencana Opsi Saham Bekerja**
Oleh Patrick Durkin
Hampir tiga perempat dari rencana opsi saham karyawan yang diterbitkan oleh 50 perusahaan teratas yang terdaftar di
ASX sejak tahun 2003 kini tidak bernilai, penelitian oleh firma hukum Deacons telah menemukan. Untuk perusahaanperusahaan yang terdaftar di dua pertiga terbawah dari Indeks S&P/ASX 300, hampir 90 persen rencana tidak bernilai.
Eksekutif di perusahaan-perusahaan besar yang terdaftar termasuk Macquarie Group, Toll Holdings, Tabcorp, dan
Babcock & Brown adalah beberapa yang telah menyaksikan jutaan dolar dalam opsi saham menghilang setelah All
Ordinaries mengalami tahun kalender terburuk yang tercatat pada tahun 2008, merosot 43 persen. Kemarin, pasar saham
jatuh ke titik terendahnya tahun ini, dengan Indeks S&P/ASX 200 kehilangan 5,2% lagi untuk tahun ini. Skema opsi
saham karyawan telah diterima selama beberapa tahun terakhir, terutama oleh perusahaan-perusahaan kecil yang
mencoba bersaing dengan pesaing yang membayar lebih tinggi dalam pertempuran untuk bakat eksekutif. Rencana
tersebut menetapkan harga saham di mana eksekutif dapat mengambil opsi dan biasanya jatuh tempo tiga tahun setelah
diterbitkan. Skema ini memberikan keuntungan besar pada puncak booming, dengan opsi sering kali dilaksanakan pada
harga yang jauh lebih rendah dari harga saham perusahaan yang terus meningkat. Namun, sebagian besar keuntungan
yang diperkirakan oleh eksekutif telah menguap. Eksekutif di Macquarie Group dan Toll Holdings telah terkena dampak
yang cukup parah karena mereka adalah satu-satunya dua perusahaan di 50 teratas yang secara eksklusif menggunakan
rencana opsi, bukan rencana hak kinerja. "Rencana hak kinerja memberikan setidaknya beberapa perlindungan dari
penurunan pasar yang tajam karena mereka memiliki harga pelaksanaan nol dan hambatan kinerja biasanya melibatkan
perbandingan total pengembalian pemegang saham perusahaan dengan sekelompok perusahaan serupa," kata Andrew
Spalding dan Shane Bilardi, penulis penelitian yang dilakukan bulan lalu. "Selama perusahaan mencocokkan atau
mengungguli rekan-rekannya, hak tersebut masih dapat jatuh tempo bahkan di pasar yang menurun." Rata-rata harga
pelaksanaan untuk opsi Macquarie adalah $61,23, laporan tahunan terbaru perusahaan menunjukkan. Pada tingkat saat
ini, harga sahamnya harus lebih dari dua kali lipat sebelum rencana opsi mendapatkan kembali nilai bagi eksekutif. Opsi
Tabcorp juga harus lebih dari dua kali lipat, dengan rata-rata 54 persen di luar uang. Harga saham Timbercorp harus
meningkat 13 kali lipat, dengan opsi rata-rata 92,5 persen di luar uang. Untungnya bagi eksekutif di perusahaan blue
chip, banyak perusahaan ASX 50 teratas telah beralih secara eksklusif ke rencana hak kinerja atau menggunakannya
dalam kombinasi dengan rencana opsi. "Tampaknya sebagian besar perusahaan teratas 50 telah belajar dari krisis
Dotcom dan beralih ke skema hak kinerja daripada skema opsi saham karyawan untuk memastikan bahwa skema
insentif mereka terus memotivasi karyawan mereka selama penurunan pasar," kata para penulis. "Hal yang sama tidak
dapat dikatakan untuk banyak perusahaan di luar 100 teratas, dan ini dapat berdampak negatif pada kemampuan mereka
untuk mempertahankan dan memotivasi karyawan kunci mereka." Harga pelaksanaan opsi yang diterbitkan di bawah
rencana perusahaan-perusahaan teratas 50 rata-rata 4 persen di atas harga saham saat ini. Namun, bahkan hasil itu
menyanjung karena kinerja kuat QBE, Woolworths, Fortescue Metals, dan Origin Energy dan fakta bahwa kinerja
terburuk - Asciano, Centro, dan Babcock - telah keluar dari 50 teratas. Direktur Strategi Remunerasi Gary Fitton
mengatakan bahwa rencana penggajian yang diterapkan sebelum krisis hanya ketinggalan zaman. "Perusahaan
cenderung mengadopsi pendekatan yang cukup meniru dan beberapa investor sekarang bertanya-tanya apakah
hambatan kinerja yang berbeda harus digunakan, mengingat titik terendah yang sangat rendah untuk pasar. "Anda
mungkin melihat lebih banyak ukuran kinerja internal diadopsi dan kembali ke ukuran yang lebih berorientasi pada
pendapatan."
**Pertanyaan**
1. Garis besar perbedaan antara rencana opsi dan rencana hak kinerja.
2. Artikel tersebut menyatakan bahwa hampir tiga perempat dari rencana opsi saham karyawan yang diterbitkan oleh
50 perusahaan teratas ASX kini tidak bernilai. Jelaskan bagaimana opsi bisa tidak bernilai ketika perusahaan memiliki
miliaran dolar aset.
3. Apa yang diungkapkan lingkungan harga saham yang jatuh tentang efektivitas rencana insentif sebagai alat motivasi?
**Pengakuan Segera**
Prinsip terakhir untuk mengakui dan mengukur biaya dapat dilihat sebagai prinsip yang mencakup semua kemungkinan
lain yang tidak dicakup oleh dua prinsip pertama. Sebuah contoh penggunaan pengakuan segera adalah pencatatan biaya
iklan. Efek iklan mungkin memiliki manfaat jangka panjang, tetapi sering kali sulit untuk ditentukan. Misalnya,
pelanggan mungkin membeli produk karena mereka dipengaruhi oleh iklan yang mereka lihat dua tahun sebelumnya.
Karena manfaatnya tidak dapat ditentukan dengan cara yang kredibel, biaya iklan biasanya diakui segera sebagai biaya.
Demikian pula, pengeluaran penelitian diakui segera sebagai biaya di bawah IAS 38/AASB 138 Aset Tak Berwujud.
Pembuat standar (dalam hal ini IASB) berpendapat bahwa pengeluaran penelitian tidak memenuhi kriteria pengakuan
untuk aset, yaitu, manfaat ekonomi masa depan tidak mungkin, atau tidak dapat diukur dengan andal. Biaya penurunan
nilai adalah item lain yang diberikan pengakuan segera. Meskipun baik aset berwujud maupun tidak berwujud dapat
dikenakan persyaratan depresiasi atau amortisasi, proses alokasi dapat melibatkan kesalahan dalam penilaian atau nilai
aset dapat dipengaruhi oleh peristiwa tak terduga lainnya. Ketika jumlah yang dapat dipulihkan dari suatu aset dianggap
kurang dari nilai tercatatnya, biaya segera diakui dalam laporan laba rugi sesuai dengan IAS 36/AASB 136 Penurunan
Nilai Aset. Dengan demikian, biaya penurunan nilai muncul karena penurunan nilai aset, konsisten dengan definisi
biaya dalam Kerangka.
**Kritik terhadap Alokasi**
Paton dan Littleton memberikan kerangka logis untuk akuntansi konvensional. Konsep pencocokan adalah salah satu
fitur kunci dalam kerangka ini. Paton dan Littleton mengaitkan pencocokan biaya terhadap pendapatan dengan gagasan
mencocokkan usaha dengan pencapaian. Mereka melihat proses bisnis sebagai aliran biaya, aliran yang pada akhirnya
berakhir di laporan laba rugi sebagai biaya yang kedaluwarsa. Menentukan jumlah biaya yang telah kedaluwarsa adalah
salah satu tugas utama akuntan. Namun, seperti yang ditunjukkan oleh Sprouse, proses pencocokan telah membuat
neraca menjadi sekunder dibandingkan laporan laba rugi; itu hanya berfungsi sebagai tempat penyimpanan biaya yang
belum kedaluwarsa saat menunggu waktu untuk kedaluwarsa di laporan laba rugi mendatang. Pendekatan ini
mengurangi kegunaan neraca bagi pengambilan keputusan pengguna. Dalam beberapa tahun terakhir, pembuat standar
telah fokus pada definisi dan kriteria pengakuan untuk aset dan kewajiban yang memastikan neraca tidak 'sekunder'
dibandingkan laporan laba rugi. Praktik saat ini juga dikritik oleh Thomas, yang berpendapat bahwa banyak informasi
yang dilaporkan akuntan adalah 'sampah', karena informasi akuntansi sebagian besar didasarkan pada alokasi. Thomas
berargumen bahwa alokasi secara teoritis tidak dapat dibenarkan. Untuk dibenarkan, tiga kriteria disarankan:
• Additivitas. Keseluruhan harus sama dengan bagian-bagiannya. Jika suatu alokasi dilakukan dari total, pemisahan
tersebut harus menghabiskan total tersebut, tidak lebih dan tidak kurang. Artinya, ketika jumlah yang dialokasikan
dijumlahkan, totalnya sama seperti sebelum alokasi.
• Ketidakambiguian. Metode alokasi harus menghasilkan alokasi yang unik - pilihan yang jelas tentang metode harus
dibuat. Cara alokasi harus jelas.
• Pembelaan. Setelah metode alokasi dipilih, orang yang membuat pemilihan harus dapat memberikan argumen yang
meyakinkan untuk pilihannya, dan membelanya terhadap metode alternatif lainnya.
Thomas berpendapat bahwa alokasi dalam akuntansi tidak memenuhi kriteria ini, terutama kriteria ketiga. Mungkin
untuk membela metode alokasi tertentu; sebenarnya, berbagai metode ada, masing-masing dapat dibela. Namun, tidak
ada cara yang meyakinkan untuk memilih satu di antara yang lain, kecuali secara sewenang-wenang. Akuntan membela
alokasi dengan dua alasan. Salah satu argumennya adalah bahwa input tertentu memberikan layanan di periode saat ini
dan mendatang dan pola alokasi mencerminkan biaya layanan yang diterima pada periode tertentu. Namun, akuntan
tidak dapat, menurut Thomas, karena pernyataan alokasi pada awalnya 'tidak dapat dibuktikan'; artinya, mereka tidak
dapat diverifikasi atau dibantah dengan cara empiris yang objektif. Thomas menyatakan bahwa 'tidak ada yang ada di
dunia luar untuk alokasi yang mendekati'. Ia berpendapat bahwa 'pernyataan alokasi konvensional tidak merujuk pada
pemisahan dunia nyata; ketika alokasi yang tidak dapat dibuktikan membagi total akuntansi, tidak ada alasan untuk
percaya bahwa ini mencerminkan pemisahan total eksternal menjadi bagian-bagian independen ... Pernyataan alokasi
konvensional tidak merujuk pada fenomena ekonomi dunia nyata, tetapi hanya pada hal-hal dalam pikiran para penegas
dan pembaca mereka'. Jika Thomas berarti bahwa pola layanan atau kontribusi terkait dengan input memang ada di
dunia nyata tetapi pernyataan akuntan tentang pola ini sangat jauh dari pola aktual sehingga membuat pernyataan
mereka tidak realistis, banyak akuntan dapat menerima kritik semacam itu. Namun, Thomas melangkah lebih jauh dari
itu. Ia berpendapat bahwa pola layanan atau kontribusi tidak ada di dunia eksternal, hanya ada dalam pikiran akuntan.
Thomas mengamati, 'pernyataan kami merujuk pada isi pikiran kami, bukan pada dunia eksternal'. Di sisi lain, alasan
kedua bahwa data yang dialokasikan melayani tujuan yang berguna dan oleh karena itu data tersebut harus berguna,
ditolak oleh Thomas. Ia berpendapat bahwa studi empiris yang mengklaim informasi akuntansi yang ada berguna tidak
benar-benar menunjukkan bahwa itu berguna. Ia berpendapat bahwa orang telah dikondisikan untuk percaya bahwa
informasi yang dialokasikan valid. 'Pernyataan alokasi konvensional berada pada