Abstract
This discussion summarizes the paper by Hachmeister et al. (Z Betriebswirtschaft, 2012) and highlights several issues that are useful to put the results in perspective. I discuss the main result that ideal cost accounting is superior to ideal value accounting by questioning the fairness of a comparison of the two idealized accounting systems. I review the main assumptions and information requirements of the model, and I consider the potential contribution of the paper to the current standard setting debate about measurement bases in financial reporting.
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Notes
See, e.g., Barth (2008).
It should be noted that the Conceptual Framework (IASB2010) defines decision usefulness as the primary objective of financial reporting, which is broadly in line with the valuation purpose in HLS, and suggests that this also serves stewardship purposes, whereas HLS show in accordance with most of the formal literature (for a different view see Drymiotes and Hemmer2011) that it is a different objective.
For a recent survey, see Pfeiffer and Velthuis (2009).
Indeed, the Conceptual Framework emphasizes that accrual accounting provide a better basis for assessing an entity’s performance than do cash flows (IASB2010, OB17).
See Rajan and Reichelstein (2009) for this result.
The possibility that an investment int affects investment decisions in periods aftert is not modeled explicitly. HLS illustrate what they have in mind by a mentioning a firm that imposes a minimum threshold unequal to zero on the marginal present value.
See, e.g., ICAEW (2006) for an evaluation of different measurement bases.
See, e.g., Benston et al. (2006, pp. 261–262).
Since HLS abstract away from uncertainty following investment, an impairment would not occur in their model.
References
Barth ME (2008) Global financial reporting: implications for U.S. academics. Acc Rev 83:1159–1179
Benston G, Bromwich M, Litan RE, Wagenhofer A (2006) Worldwide financial reporting: the development and future of accounting standards. Oxford University Press, New York et al.
Drymiotes G, Hemmer T (2011) On the stewardship and valuation implications of accrual accounting systems. Working paper, University of Houston and Rice University, May
Hachmeister D, Lampenius N, Stähle M (2012) Decision-usefulness of ideal cost- and ideal value accounting for valuation and stewardship. Z Betriebswirtschaft. doi:10.1007/s11573-012-0604-x
IASB (2010) The conceptual framework for financial reporting 2010, London
ICAEW (2006) Measurement in financial reporting, London
Pfeiffer T, Velthuis L (2009) Incentive system design based on accrual accounting: a summary and analysis. J Manage Acc Res 21:19–53
Rajan MV, Reichelstein S (2009) Depreciation rules and the relation between marginal and historic cost. J Acc Res 47:823–865
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Wagenhofer, A. Discussion of “Decision-usefulness of ideal cost- and ideal value accounting for valuation and stewardship”. Z Betriebswirtsch 82 (Suppl 5), 183–189 (2012). https://doi.org/10.1007/s11573-012-0600-1
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DOI: https://doi.org/10.1007/s11573-012-0600-1