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The syntax of the accounting language: a first step
Abstract
We review and interpret two propositions published by Ellerman [2014. On double-entry bookkeeping: the mathematical treatment. Accounting Education, 23(5), 483–501] in this journal. The paper builds on this contribution with the view of reconciling the two, apparently dichotomous, perspectives of accounting measurement: the stock and the flow approaches to income. It claims that T-accounts have an underlying algebraic structure suitable for approaching measurement from either or both perspectives. Accountants’ preferences for stocks or flows can be framed in ways which are mutually consistent. This is a first step in addressing this consistency issue. We avoid the difficult mathematics of abstract algebra by applying the concept of syntax to accounting numbers such that the accounting procedure qualifies as a formal language to convey meaning. We are addressing those educators responsible for designing accounting degree programmes, for whom grasping the issue of syntax is important when offering cross-disciplinary options to accounting students with interest in, or need for, engaging with information science.
... With the results of this study, it is important for educators responsible for designing accounting degree programs offering cross-disciplinary options for accounting students and engaging with technology and information science, such as studies conducted by Botafogo (2019). Widespread view that technological development is an important area that must be addressed throughout the accounting curriculum, to expose changes in the marketplace and to enhance graduates' employability. ...
The main purpose of this study is to explore the effectiveness of Traditional Learning (TL) and Laptop-Based Active Learning (LAL) in the achievement of accounting students’ competence. This study is quantitative methods approach comprising of a systematic literature review, data analysis, and experimental studies on the two classes applying a different learning approach. Class A with 40 students applied the LAL approach, while class B with 38 students applied the TL approach. Students in the two classes received different treatments, but the question items tested were the same. This study also uses the independent samples t-test to analyze the hypotheses from the two data groups, both those using TL and LAL learning types. Overall, this study demonstrates that the accounting students’ learning achievement is higher when the class uses LAL approach instead of TL approach and that the LAL approach is better than the TL approach, especially on the Descriptive Statistics for Business course at Accounting Department, Islamic University of Indonesia.
Double-entry bookkeeping (DEB) implicitly uses a specific mathematical construction, the group of differences using pairs of unsigned numbers ('T-accounts'). That construction was only formulated abstractly in mathematics in the nineteenth century, even though DEB had been used in the business world for over five centuries. Yet the connection between DEB and the group of differences (here called the 'Pacioli group') is still largely unknown both in mathematics and accounting. The precise mathematical treatment of DEB allows clarity on certain conceptual questions and it immediately yields the generalization of the double-entry method to multi-dimensional vectors typically representing the different types of property involved in an enterprise or household.
This book describes the construction of algebraic models which represent the operations of the double entry accounting system. It gives a novel, comprehensive, proof based treatment of the topic, using such concepts from abstract algebra as automata, digraphs, monoids and quotient structures
Throughout its long history, mathematics has involved the use of systems of written signs, most notably, diagrams in Euclidean geometry and formulae in the symbolic language of arithmetic and algebra in the mathematics of Descartes, Euler, and others. Such systems of signs enable one to embody chains of mathematical reasoning. The author shows that, properly understood, Frege’s Begriffsschrift or concept-script similarly enables one to write mathematical reasoning. Much as a demonstration in Euclid or in early modern algebra does, a proof in Frege’s concept-script shows how it goes.
Double-entry bookkeeping (DEB) implicitly uses a specific mathematical
construction, the group of differences using pairs of unsigned numbers
("T-accounts"). That construction was only formulated abstractly in mathematics
in the 19th century--even though DEB had been used in the business world for
over five centuries. Yet the connection between DEB and the group of
differences (here called the "Pacioli group") is still largely unknown both in
mathematics and accounting. The precise mathematical treatment of DEB allows
clarity on certain conceptual questions and it immediately yields the
generalization of the double-entry method to multi-dimensional vectors
typically representing the different types of property involved in an
enterprise or household.
The notions 'taxonomy' and 'semantic contrast' have played an important role in ethnographic semantics, but they are not so simple as is sometimes supposed. In particular, 'level of contrast' is an ill-defined and misleading term. When one formulates the notion 'taxonomy' in a precise way, as is done here, light is shed on several questions of lexical semantics involving the notion of semantic contrast. For example, several different types of semantic contrast relation, all appearing to have empirical reality, can be formally defined.
Standard setters advocate a balance sheet approach to financial reporting, which views assets and liabilities as primary, and income as just the derivative change in net assets. This paper argues that income is conceptually and practically better described as ‘adjusted net cash flows,’ where the adjustments are the accounting accruals. One proof of that is seen in the existence of whole accounting systems like tax accounting and national income accounting, which emphasize the determination of income but have no balance sheets. The paper also argues that an income-based approach to financial reporting is by nature better suited to reflect the success of advancing cash to earn more cash, which defines what for-profit entities do. There are two main features of the income-based approach. One is attention on the cash flows as the natural foundation for financial reporting because they are precisely determined, and provide a clear link to firm valuation. The other is attention on the accounting accruals, which serve to adjust the raw cash flows to better show the current success of investing cash to ultimately earn more cash. Specifically, the paper argues for revenue recognition which is close to current practice, and for expense recognition which is aligned with the matching principle.
SYNOPSIS:
The issues of measurement and performance reporting have presented particularly difficult challenges to standard setters for years and, in the process, have generated much discussion among academics, preparers, and financial statement users. In this commentary, we summarize and compare three new perspectives on these two issues: Linsmeier (2016), who suggests that standard setters focus on recurring versus non-recurring operations; Marshall and Lennard (2016), who suggest distinguishing among business types; and Nishikawa, Kamiya, and Kawanishi (2016), who suggest using a dual measurement approach. In discussing these three proposals, we also identify areas where academic research is needed to provide evidence on the costs and/or benefits of the proposed changes.
The article suggests a descriptive, axiomatic type of conceptual framework for conventional accounting measurement practice. The disclosure problem in financial accounting is caused by the need to decide what, of all the available numerical and nonnumerical information, to include in a set of financial reports. The measurement problem in financial accounting is chiefly concerned with explaining the nature of the specifically numerical information produced by accounting systems, whether or not it is disclosed in financial statements. The problems of measuring the accounting attribute remain constant even though the resulting numerical information may be disclosed to differing third parties such as management, investors and creditors. The common assumptions which are made by different user groups concerning the numerical information contained in financial statements are arithmetic in character. As soon as these arithmetic properties are questioned, however, it becomes clear that they are not self-evident. The problems raised in interpreting the arithmetic properties of accounting data appear to be due to the accountant's lack of understanding of the attribute which is being measured in financial statements.
This paper presents an axiomatic theory of accounting practice which describes accounting concepts in terms of sets. The theory
provides a framework within which to understand the significance of accounting measurements for the probabilistic analysis
of economic processes.
In seeking to replace accounting conventions by concepts in the pursuit of principles-based standards, the FASB/IASB joint project on the conceptual framework has grounded its approach on a well-known definition of income by Hicks. We welcome the use of theories by accounting standard setters and practitioners, if theories are considered in their entirety. Cherry-picking parts of a theory to serve the immediate aims of standard setters risks distortion. Misunderstanding and misinterpretation of the selected elements of a theory increase the distortion even more. We argue that the Boards have selectively picked from, misquoted, misunderstood and misapplied Hicksian concepts of income. We explore some alternative approaches to income suggested by Hicks and by other writers, and their relevance to current debates over the Boards' conceptual framework and standards. Our conclusions about how accounting concepts and conventions should be related differ from those of the Boards. Executive stock options (ESOs) provide an illustrative case study.
The FASB’s 2004 Exposure Draft, Fair-Value Measurements, would have companies determine fair values by reference to market prices on the same assets (level 1), similar assets (level 2) and, where these prices are not available or appropriate, present value and other internally generated estimated values (level 3). Enron extensively used level three estimates and, in some instances, level 2 estimates, for its external and internal reporting. A description of it’s use and misuse of fair-value accounting should provide some insights into the problems that auditors and financial statement users might face when companies use level 2 and, more importantly, level 3 fair valuations. Enron first used level 3 fair-value accounting for energy contracts, then for trading activities generally and undertakings designated as “merchant” investments. Simultaneously, these fair values were used to evaluate and compensate senior employees. Enron’s accountants (with Andersen’s approval) used accounting devices to report cash flow from operations rather than financing and to otherwise cover up fair-value overstatements and losses on projects undertaken by managers whose compensation was based on fair values. Based on a chronologically ordered analysis of its activities and investments, I believe that Enron’s use of fair-value accounting is substantially responsible for its demise.
At first I saw Don Juan simply as a rather peculiar man who knew a great deal…but the people…believed that he had some sort of “secret knowledge”, that he was a “brujo”. The Spanish word brujo means, in English…sorcerer. It connotes essentially a person who has extraordinary…powers.I had known Don Juan for a whole year before he took me into his confidence. One day he explained that he possessed a certain knowledge that he had learned from a teacher, a “benefactor” as he called him, who had directed him in a kind of apprenticeship. Don Juan had, in turn, chosen me to serve as his apprentice, but he warned me that I would have to make a very deep commitment and that the training was long and arduous…My field notes disclose the subjective version of what I perceived while undergoing the experience. That version is presented here…My field notes also reveal the content of Don Juan's system of beliefs. I have condensed long pages of questions and answers between Don Juan and myself in order to avoid reproducing the repetitiveness of conversation…(The Teachings of Don Juan: A Yaqui Way of Knowledge, Carlos Castaneda, 1970, pp. 14, 24, 25).
When international accounting standards were renamed to become international financial reporting standards, this seemed to imply that accounting no longer needed to exist, but rather had to be reconsidered as a part of financial communication and advertising. Does traditional accountability no longer matter? Betrayed investors and globalized stakeholders would dissent. A difference of nature continues to exist between fair values disclosed by managers and certified by auditors, and the actual performance generated by the enterprise entity through time, space, and interaction. In a world shaped by complex organizations facing unfolding changes, hazard and limited knowledge, the quest for fundamental principles of accounting is not academic. Accounting principles constitute a primary way that the creation and allocation of business incomes is governed; that is, fairly managed and regulated in the public interest, having respect to “other people interests.” This article adopts a dualistic posture that opposes the accounting conceptual frameworks based on fair value (market basis) and historical cost and revenue (process basis). The fundamental premises about the underlying economics of the enterprise entity are discussed, including the representation of the business and the concepts of asset and liability. References are made to the case of accounting for intangibles, and to the distinction between equities and liabilities. The cost and revenue accounting perspective is then defended in terms of accountability, but also from the informational viewpoint: historical accounting information plays a special role as a lighthouse in the dynamic and strategic setting of the Share Exchange. In particular, two refinements of the historical cost (and revenue) accounting model are suggested. The first one regards the treatment of earned revenues from continuing operations, and the second, the recognition of shareholders' equity interest computed on the actual funds provided in the past, coupled with the distinction between shareholders' equity and entity equity.
This book provides an introduction to measurement theory for non-specialists and puts measurement in the social and behavioural sciences on a firm mathematical foundation. Results are applied to such topics as measurement of utility, psychophysical scaling and decision-making about pollution, energy, transportation and health. The results and questions presented should be of interest to both students and practising mathematicians since the author sets forth an area of mathematics unfamiliar to most mathematicians, but which has many potentially significant applications.
Stock and option compensation and the level of managerial equity incentives are aspects of corporate governance that are especially controversial to shareholders, institutional activists, and government regulators. Similar to much of the corporate finance and corporate governance literature, research on stock-based compensation and incentives has not only generated useful insights, but also produced many contradictory findings. Not surprisingly, many fundamental questions remain unanswered. In this study, the authors synthesize the broad literature on equity-based compensation and executive incentives and highlight topics that seem especially appropriate for future research.
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