...National and International Approaches in Social Reporting Author(s): Franz Rothenbacher Reviewed work(s): Source: Social Indicators Research, Vol. 29, No. 1 (May, 1993), pp. 1-62 Published by: Springer Stable URL: http://www.jstor.org/stable/27522680 . Accessed: 25/11/2011 03:27 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Springer is collaborating with JSTOR to digitize, preserve and extend access to Social Indicators Research. http://www.jstor.org FRANZ ROTHENBACHER NATIONAL AND INTERNATIONAL APPROACHES IN SOCIAL REPORTING* (Accepted 27 October, 1992) ABSTRACT. National and international in social in western approaches reporting are described. starts with The the outline of current in activities paper Europe are discussed. international The national Further organizations. competing approaches and products of social reporting; the plurality of actors in social topics are the sources and different The only diffusion of ways of its institutionalization. reporting, incomplete inWestern social are offered...
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...Limitations of Historical Costing in times of Inflation Historical Cost accounting and its significance History of Historical Cost Accounting Techniques of Historical Cost Accounting Conclusion References: 1 2 3 *** The impact of inflation comes in the form of rising prices of output and assets. As the financial accounts are kept on Historical cost basis, so they don't take into consideration the impact of rise in the prices of assets and output. This may sometimes result into the overstated profits, under priced assets and misleading picture of Business etc. So, the financial statements prepared under historical accounting are generally proved to be statements of historical facts and do not reflect the current worth of business. This deprives the users of accounts like management, shareholders, and creditors etc. to have a right picture of business to make appropriate decisions. Hence, this leads towards the need for Inflation Accounting. Inflation accounting is a term describing a range of accounting systems designed to correct problems arising from historical cost accounting in the presence of inflation. The significance of inflation accounting emerges from the inherent limitations of the historical cost accounting system. Following are the limitations of historical accounting: 1. Historical accounts do not consider the unrealised holding gains arising from the rise in the monetary value of the assets due to inflation. 2. The objective of charging depreciation...
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...Limitations Of Historical Cost Accounting Limitations of historical cost accounting Financial statements prepared on the historical cost basis do not necessarily lead to a true and fair presentation of an entity’s performance or future potential if capital is not being maintained. Furthermore, actual assessment of performance through ratios such as return on capital are meaningless if profit are overstated, capital undervalued, and assets are valued under a mixture of conventions. Limitations of historical cost accounting include : • Depreciation charged on historically costed assets is only an arbitrary amount based on out-of-date values and estimated useful economic lives. • Depreciation charges do not take into account actual replacement cost of assets at current prices. • Profit will not reflect the actual ‘costs’ of trading, which include the replacement of assets at some point in time. • By not accounting for inflation, there is no assurance that the entity is maintaining its capital base. • Overstating profits by undercharging depreciation based on historical cost, and charging cost of sales at historical cost of inventories (and not current cost) can lead to the depletion of an entity’s capital through high tas charges and distributions. • While historical cost accounting provides a consistent basis for entities to prepare accounts, inflation affects different products and markets, and hence entities, to different degree. • Historical cost accounting makes...
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...PROS AND CONS OF FAIR VALUE ACCOUNTING Abstract The speed of globalization in the capital markets and the increasing complexity of financial instruments have caused financial statement users to question the relevance and usefulness of historical cost accounting (HCA). The propensity to use fair value accounting (FVA) is imminent as we enter into a borderless economy and as financial markets evolve that require more current and relevant financial information. The U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) joint effort to establish a uniform accounting standard has caused alarm to U.S. companies and accounting professionals. They contend that fair value accounting has some inherent flaws that will cause adverse effects in the economy. This paper will compare fair value accounting and historical cost accounting and will discuss the advantages and disadvantages of the two valuation methods. It will also explore several issues embedded between the two valuation methods and will examine other alternatives possible to reduce the limitations inherent between the two valuations. Key words: fair value accounting, historical cost accounting, and pro-cyclicality Introduction The use of fair value accounting has gained so much attention in the past decade due to the global economy and increasing complexity of financial instruments. Many critics believe that fair value accounting offers more relevant and...
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...Contemporary issues in Accounting Unit Code: ACCOO106 Assignment -1 Subject: Normative accounting theory To: Mr Khalid Mahmood Name: Muhammad Mehedi Alam ID: 21562675 Word count: 1145(reference excluded) Date of Submission-07/12/09 Normative accounting theories CPPA- current/constant purchasing power accounting CCA- current cost accounting CoCoA- continuous contemporary accounting Current purchasing power accounting a form of accounting that measures profit after allowing for the maintenance of the purchasing power of the shareholders' capital. ‘There are various prescriptive theories of accounting that were advanced by various people on the basis that historical cost accounting has too many shortcomings, particularly in times of rising prices’ (Page 83 Chapter 4). | Theory and Purpose of |CPPA |Maintain purchasing power |Adjustments to income | |accounting | | | | |Measure of non-monetary |HC (historical cost) |historical cost accounts adjusted for |Holding gain/loss on net monetary | |assets’ value | |changes in the purchasing power of the |assets/liabilities only recognised in | | | |dollar (not recognise in PNL) |PNL ...
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...org/learning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 CHAPTER 5 Normative theories of accounting 1: The case of accounting for changing prices Learning Objectives http://www.download-it.org/learning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 Upon completing this chapter readers should: ◆ be aware of some particular limitations of historical cost accounting in terms of its ability to cope with various issues associated with changing prices; ◆ be aware of a number of alternative methods of accounting that have been developed to address problems associated with changing prices; ◆ be able to identify some of the strengths and weaknesses of the various alternative accounting methods; ◆ understand that the calculation of income under a particular method of accounting will depend on the perspective of capital maintenance that has been adopted. Opening issues Various asset valuation approaches are often adopted in the financial statements of large corporations. Fixed assets acquired (or perhaps revalued) in different years will simply be added together to give a total euro value, even though the various costs or valuations might provide little reflection of the current values of the respective assets. Issues to consider: (a) What are some of the criticisms that can be made in relation to the practice of accounting, wherein we add together, without adjustment, assets that have been acquired or valued in different years, when the...
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...Summary Accounting concepts are the rules and guidelines used in accountancy and one of these is the historical cost accounting. This concept is an accounting technique that values an asset on the balance sheet at the price paid for the asset at the time of its acquisition. Moreover, the historical cost accounting is the situation in which accountants record revenue, expenditure and asset acquisition and disposal at historical cost. This means the actual amounts of money, or money’s worth, received or paid to complete the transaction. However, there are several limitations and flaws of the traditional historical costs method. But still, historical costs are the standard form of accounting due to its unique features and convention that make it better than most bases of measurements. Table of Contents 3. ------------------------------------------------------- Introduction. 4. ------------------------------------------------------- Case 1. Relevant for decision-making. 5. ------------------------------------------------------- Case 2. Less subject to manipulation. 6. ------------------------------------------------------- Case 3. Irrelevant for decision-making. 7. ------------------------------------------------------- Case 4. Have flaws in times of inflation. 8. ------------------------------------------------------- Conclusion. 9. ------------------------------------------------------- References. Introduction Historical cost...
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...UNIVERSITY OF ABUJA FACULTY OF MANAGEMENT SCIENCE DEPARTMENT OF BANKING AND FINANCE COURSE: FINANCIAL ACCOUNTING (ACC312 QUESTION: THE RELEVANCE OF CORPORATE REPORTING BASED ON HISTORICAL ACCOUNTING PRACTICE HAS CONTINUED TO GENERATE INTENSIVE DEBATES OF DIFFERENT FORCES IN THE WORLD, WHICH IS ESPECIALLY TRUE IN A HIGH INFLATIONARY AND DISTORTED ECONOMY LIKE NIGERIA. DISCUSS THE STATEMENT IN RELATION TO JUSTIFICATION FOR INFLATION ACCOUNTING IN NIGERIA. NOVEMBER, 2011. INTRODUCTION Inflation account is a system of accounting which, unlike historical cost accounting takes into account changing prices. Inflation accounting is a term describing a range of accounting systems designed to correct problems arising from historical cost. Historical cost basis in financial statements Historical cost accounting became more widespread after values overstated during the 1920s were reversed during the great depression of 1930s. Most principles of historical cost accounting were developed after the Wall Street crash of 1929, including the presumption of a stable currency. Under a historical cost based system of accounting, inflation leads to two basic problems, first, many of the historical numbers appearing on financial are not economically relevant because prices have changed since they were incurred. Second, since the numbers on financial statements represent dollars expended at different points of time and, in turn, embody different amounts of purchasing power...
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...RE: | Interest costs on new warehouse construction ------------------------------------------------- Memo Overview It is permissible to capitalize interest into the cost of this warehouse. GAAP requires that only actual interest costs incurred during construction are to be capitalized. To qualify for interest capitalization, an asset must require a period of time to ready the asset for its intended use. Section 835-20-05 of the Accounting Standards Codification explains that capitalized interest costs are a part of the historical cost of acquiring certain assets. Therefore, costs that consequently arise in order to bring the warehouse to the ready condition and site for its intended use are included as part of the historical cost of acquisition. All of the costs associated with the construction of this asset, including the incurred interest, should be capitalized. A company capitalizes interest costs beginning with the very first expenditure appropriately related to the asset. Objectives The rationale or capitalizing interest costs on an asset is based on deferring interest costs. This is because during the time of construction, the asset is not generating revenues. There are two main objectives of capitalizing interest. These objectives can be found in the codification 835-20-10. The first objective is intended to gain a measure of acquisition cost that will thoroughly reflect an entity’s total investment in a certain asset. The second main purpose is “to...
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...Human resource accounting (HRA) as an approach was originally defined as the process of identifying, measuring and communicating information about human resources in order to facilitate effective management within an organisation. It is an extension of the accounting principles of matching costs and revenues and of organising data to communicate relevant information in financial terms. The accounting of human resources can be seen as just as much a question of philosophy as of technique. This is one of the reasons behind the variety of approaches and is further underlined by the broad range of purposes for which accounting human resources can be used, e.g. as an information tool for internal and/or external use (employees, customers, investors, etc.), and as a decision-making tool for human resource management (investments in human resources as well as personnel management in general). Historical cost approach This was the first attempt towards employee valuation made by R. G. Barry Corporation of Columbus, Ohio in the year 1967. This method measures the organization’s investment in employees using the five parameters: recruiting, acquisition; formal training and familiarization; informal training, Informal familiarization; experience; and development. The costs were amortized over the expected working lives of individuals and unamortized costs (for example, when an individual left the firm) were written off. [edit] Limitations * The valuation method is based on...
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...Financial statements are based on historical costs and as such the impact of price level changes is completely ignored. They are interim reports. The basic nature of financial statements is historic. These statements are neither complete nor exact. They reflect only monetary transactions of a business. The following limitations may be noted: 1. The financial position of a business concern is affected by several factors-economic, social and financial, but financial factors are being recorded in these financial statements. Economic and social factors are left out. Thus the financial position disclosed by these statements is not correct and accurate. 2. The profit revealed by the Profit and Loss Account and the financial position disclosed by the Balance Sheet cannot be exact. They are essentially interim reports. 3. Facts which have not been recorded in the financial books are not depicted in the financial statement. Only quantitative factors are taken into account. But qualitative factors such as reputation and prestige of the business with the public, the efficiency and loyalty of its employees, integrity of management etc. do not appear in the financial statement. 4. The rupee of 1995, as for example, does not mean the same as the rupee of 2010. The existing historical accounting is based on the assumption that the value of monetary unit, say rupee, remains constant and accordingly assets are recorded by the business at the price at which they are required and the liabilities...
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...in working capital, common size percentages (analysis), fund analysis, trend analysis, and ratio analysis. The purpose of this paper is to review the financial statements of one domestic, and one global organization from the Financial Times 500. The two companies for review are the McDonald’s and Samsung organizations. The data provided in the financial statements will convert into a ratio analysis. Common size analysis, and accounting analysis limitations are tools for review. The pros and cons of each of these statistical tools will also be discussed. To understand the importance of statistical tools, a review of ratio analysis, common size analysis, and accounting analysis limitation will be the starting point for this paper. Ratio Analysis Ratio analysis is the most powerful tool of financial analysis (Accounting for Management, 2012, para. 1) used to evaluate the significance of financial statement data. Ratio analysis is the calculation and comparison of ratios used to monitor and analyze the performance of a firm or organization. Historical trends and of ratios are used to provide important data regarding a company’s financial condition, operations, and ability to attract investors. Pros and Cons of Ratio Analysis The pros...
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...According to Meigs and Meigs (2003), the purpose of financial statement analysis is to provide information about a business unit for decision making purpose and such information need not to be limited to accounting data. White ratios and other relationships based on past performance may be helpful in predicting the future earnings performance and financial health of a company, we must be aware of the inherent limitations of such...
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...Cost Accounting : An Introduction MODULE - 6B Elementary Cost Accounting 27 COST ACCOUNTING : AN INTRODUCTION After passing your senior secondary examination, if you set up a small manufacturing unit, say manufacturing of packing boxes, a problem will arise what price of each box you should quote to the buyer. Many factors are considered while fixing the price of a product/item such as competitors’ price etc. One of the basic factors is the cost of its production. Cost is essential not only to fix price but also to ascertain the margin of profit. Knowledge of the cost determination is also necessary to keep a check on the cost of product/control on wastages, etc. The accounting used to study the various aspects of cost is known as cost accounting. In this lesson, you will learn about meaning, importance, limitations etc. of cost accounting. Notes OBJECTIVES After studying this lesson, you will be able to: state the meaning and scope of cost accounting; explain the objectives of cost accounting; differentiate between cost accounting and financial accounting; state importance of cost accounting; explain limitations of cost accounting. 27.1 MEANING AND SCOPE OF COST ACCOUNTING Cost accounting is the process of determining and accumulating the cost of product or activity. It is a process of accounting for the incurrence and the control of cost. It also covers classification, analysis, and interpretation of cost. In other words, it is a system of accounting, which provides...
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...| Measurement Principles in Financial Accounting | A case study on the problems with Fair Value Accounting | | Kurt Vonderheide | 12/8/2009 | Abstract | | The use of historical accounting provides simplified but verifiable information to users of accounting statements. One argument to historical values is that they do not provide true values. This had led to a push to use fair value accounting methods for financial statements. While fair values methods may more accurately reflect true values, scandals such as Enron have brought to light the tradeoffs associated with using this method over historical costs. John P. Glynn, a partner at Pricewaterhouse Coopers who heads the firm’s valuation practice, recently stated “When it comes to valuation, what one person thinks can be completely different from the next.” (Der Hovanesian, 2009, p.26). At the heart of financial accounting is the reporting of value on financial statements. There are numerous concepts used by accountants as guidelines by which they work. One of these concepts is that of historical cost accounting. Generally accepted accounting principles (GAAP) requires that companies account for and report many assets and liabilities on the basis of acquisition price. This is often referred to as the historical cost principle. (Kieso, Weygandt, Warfield, 2009). Historical cost means what it cost the company for the item and is therefore most likely not fair market value. More simply put,...
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