ARTICLES

 

Issues surrounding the classification of accounting information

 

 

Huibrecht M van der Poll^I; Daan G Gouws^II

^IDepartment of Management Accounting, UNISA
^IIDepartment of Financial Management Sciences, University of Pretoria

 

 

---

ABSTRACT

The act of classifying information created by accounting practices is ubiquitous in the accounting process; from recording to reporting, it has almost become second nature. The classification has to correspond to the requirements and demands of the changing environment in which it is practised. Evidence suggests that the current classification of items in financial statements is not keeping pace with the needs of users and the new financial constructs generated by the industry. This study addresses the issue of classification in two ways: by means of a critical analysis of classification theory and practices and by means of a questionnaire that was developed and sent to compilers and users of financial statements. A new classification framework for accounting information in the balance sheet and income statement is proposed.

Keywords: Accounting information, attribute, classification, reclassification

JEL M41

---

 

 

“Full text available only in PDF format”

 

 

Bibliography

AICPA AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS) 1994. Meeting the information needs of investors and creditors, AICPA database.         [ Links ] [online] Available from: http://www.aicpa.org/members/div/acctstd/ibr/chap1.htm [Accessed: 3 May 2006].

BALSAM, S. 1994. Extending the method of accounting for stock appreciation rights to employee stock options, Accounting Horizons, 8(4): 52-56.         [ Links ]

BEDFORD, N.M. & ZIEGLER, R.E. 1975. The contributions of A.C. Littleton to accounting thought and practice, Accounting Review, 50(3): 434-443.         [ Links ]

BOHAN, M.P. 2003. Comment letter 54 to ED 2: Share-based payment, IASB database.         [ Links ] [online] Available from: http://www.iasb.org.docs.ed02/ed2-cl54.pdf. [Accessed: 4 January 2006].

CFA (CHARTERED FINANCIAL ANALYSTS) 2005. A comprehensive business reporting model: financial reporting for investors. CFA Institute: Charlottesville, Virginia.         [ Links ]

CILLIERS, H.S.; MANS, K.N.; GROBBELAAR, A.F.; STEGMANN, N.; VAN SCHALKWYK, C.J. & WESSON, N. 2004. Corporate financial reporting, Butterworths: Durban.         [ Links ]

CLARK, M.W. 1993. Entity theory, modern capital structure theory, and the distinction between debt and equity, Accounting Horizons, 7(3): 14-31.         [ Links ]

FASB (FINANCIAL ACCOUNTING STANDARDS BOARD) 2003. Statement no. 150 - Accounting for certain financial instruments with characteristics of both liabilities and equity, May. FASB: Norwalk, Connecticut.         [ Links ]

_____ 2007. Preliminary views: Financial instruments with characteristics of equity, November. FASB: Norwalk, Connecticut.         [ Links ]

_____ 2008a. Exposure draft: Conceptual framework for financial reporting, May. FASB: Norwalk, Connecticut.         [ Links ]

_____ 2008b. Exposure draft: Proposed statement of financial accounting standards disclosure of certain loss contingencies, June. FASB: Norwalk, Connecticut.         [ Links ]

_____ 2008c. Exposure draft: Proposed statement of financial accounting standards: Accounting for transfers of financial assets, September. FASB: Norwalk, Connecticut.         [ Links ]

FITZGERALD, A.A. 1936 Is the balance sheet an anachronism?, The Australian Accountant, March.         [ Links ]

_____ 1938. Planning an accounting system, The Australian Accountant, May.         [ Links ]

FORKER, J. 2003 Comment letter 110 to ED 2: Share-based payment, IASB database.         [ Links ] [online.] Available at: http://www.iasb.org.docs.ed02/ed2cl110.pdf. [Accessed: 4 January 2006].

FOULKE, R.A. 1961. Practical financial statement analysis, McGraw-Hill: New York.         [ Links ]

GILMAN, S. 1944. Accounting principles and the current classification, The Accounting Review 19(2): 109-116.         [ Links ]

GOLDBERG, L. 1964. An inquiry into the nature of accounting, George Banta: Menasha, Wisconsin.         [ Links ]

GOLDBERG, L. 2001. A journey into accounting thought, (ed.) S.L. Leech. Routledge: London.         [ Links ]

HEATH, L. 1978. Financial reporting and the evaluation of solvency, AICPA: New York.         [ Links ]

HENDERSON, S. & PEIRSON, G. 1994. Issues in financial accounting, Australian Print Group: South Melbourne.         [ Links ]

HENDRIKSEN, E.S. & VAN BREDA, M.F. 1992. Accounting theory, Irwin: Homewood, Illinois.         [ Links ]

HERRICK, A. 1944. Current assets and liabilities, Journal of Accountancy, 77, January: 48-49.         [ Links ]

HIGGINS, R.C. 2004. Analysis for financial management, McGraw-Hill: Boston, Massachusetts.         [ Links ]

HOLLANDER, A.S.; DENNA, E.L. & CHERRINGTON, J.O. 2000. Accounting, information technology and business solutions. McGraw-Hill: New York.         [ Links ]

HUIZINGH, W. 1967. Working capital classification, University of Michigan: Ann Arbor, Michigan.         [ Links ]

IFRS (INTERNATIONAL FINANCIAL REPORTING STANDARDS) 2004. International Financial Reporting Standards (IFRS™). IASCF Publications: London.         [ Links ]

KAM, V 1990. Accounting theory, John Wiley & Sons: New York.         [ Links ]

KEMPNER, J.J. 1960. A new look at the classification of inventories, The Accounting Review, 35(2): 264-271.         [ Links ]

KIRSCHENHEITER, M.; MATHUR, R. & THOMAS, J.K. 2004. Accounting for employee stock options, Accounting Horizons, 18(2): 135-156.         [ Links ]

LEV, B. 1974. Financial statement analysis: a new approach, Prentice-Hall: Englewood Cliffs, New Jersey.         [ Links ]

LEV, B. 2003. What then must we do?, in: Intangible assets: values, measures and risks, (eds.) J.R.M. HAND and LEV, B. Oxford University Press: Oxford.         [ Links ]

LEV, B. & THIAGARAJAN, R. 1991. Fundamental information analysis, Journal of Accounting Research, Autumn: 190-215.         [ Links ]

LEV, B. & ZAROWIN, P. 2003. The boundaries of financial reporting and how to extend them, in: Intangible assets: values, measures and risks, J.R.M. HAND & B. LEV (eds.) Oxford University Press: Oxford.         [ Links ]

LITTLETON, A.C. 1958. Structure of accounting theory, Cushing Malloy: Ann Arbor, Michigan.         [ Links ]

MILLER, P.B.W. & BAHNSON, P.R. 2002. Quality financial reporting. McGraw-Hill: New York.         [ Links ]

MOONITZ, M. & JORDAN, L.H. 1963. Accounting: an analysis of its problems. Holt, Rinehart and Winston: New York.         [ Links ]

NOBES, C. & PARKER, R. 2002. Comparative international accounting, Pearson Education: London.         [ Links ]

PATON, W. 1962 Accounting theory, Scholars Book Company: New York.         [ Links ]

RIAHI-BELKAOUI, A. 2004. Accounting theory, Thomson: London.         [ Links ]

RYAN, B.; SCAPENS, R.W. & THEOBALD, M. 1992. Research method and methodology in financial accounting. Academic Press: New York.         [ Links ]

SAMUELS, J.M.; WILKES, F.M. & BRAYSHAW, R.E. 1999. Financial management and decision making. Thomson: London.         [ Links ]

SCHROEDER, R.G.; CLARK, M.W. & CATHEY, J.M. 2005. Financial accounting theory and analysis. John Wiley and Sons: New York.         [ Links ]

SORTER, G.H. 1969. An 'events' approach to basic accounting theory, The Accounting Review, January: 12-19.         [ Links ]

SPROUSE, R.T 1966. Accounting for what-you-may-call-its, The Journal of Accountancy, October: 45-54.         [ Links ]

TAYLOR, R.E. 1942. No royal road: Luca Pacioli and his times. Ayer: New Hampshire.         [ Links ]

VAN DER POLL, H.M. 2007. Towards a classification framework for accounting information. DCom thesis, University of Pretoria: Pretoria.         [ Links ]

WHEATLEY, M.J. 1993. Leadership and the new science, Berret-Koehler: San Francisco.         [ Links ]

WILD, J.J.; BERNSTEIN, L.A. & SUBRAMANYAM, K.R. 2001. Financial statement analysis, McGraw-Hill: New York.         [ Links ]

WOLK, H.I.; DODD, J.L. & TEARNEY, M.G. 2004. Accounting theory, Thomson South Western: Mason, Ohio.         [ Links ]

WOOD, J. & SILVER, D. 1995. Joint application development, John Wiley & Sons: New York.         [ Links ]