ACCOUNTING

Is accounting subjective? Recognition and Measurement Issues



Is accounting subjective? Recognition and Measurement Issues

Introduction

Drucker's (1994) claim that knowledge is becoming the only meaningful economic resource is complemented by Quinn's (1992) assertion that the ability to manage this resource is the critical skill of the modern era.

Those charged with the financial management of commercial resources concur. The International Federation of Accountants (1998), for instance, notes that knowledge is the primary competitive factor in business; that it is a non-traditional intangible resource; and that the accumulation, transformation, creation and valuation of this resource lies at the heart of intellectual capital management (IFAC, 1998).

However, industrial era managerial paradigms, based on the tangible sources of value (land, labour and financial-capital) and the predict-direct-exploit-control bureaucratic machine metaphor are proving increasingly incapable of dealing with the emergent complexities of visualising, creating and leveraging this resource. Furthermore, little is known about how these intellectual resources, structures, institutions, processes or dynamics actually develop, or how they should be managed, utilised, valued or accounted for.

A concept such as intellectual capital, even with the accumulated tools of the philosophy of consciousness and the recent move to the philosophy of language, cannot be precisely defined. This should not, however, prevent us from using it at a time when the intangible is rapidly gaining economic and social supremacy over the tangible (O'Regan & O'Donnell, 2000).

Adopting the Habermasian (1984) notion of 'communicative action', an action-theory allowing for the exploration of the role and nature of relationships amongst employees as the main drivers and repositories of corporate wealth, this section challenges a literature which already leans heavily towards systems-theoretic approaches which facilitate the colonisation of this space by the owners of capital.

1. Current Approaches to Recognising and Measuring Intellectual Capital

In the absence of any accounting-specific methods to recognise and measure intellectual capital, various templates have been developed by others to facilitate its identification and management. Although there is substantial variation as to how each dimension is conceptualised, theorised or measured, and a glaring dearth of good empirical studies, a broad consensus is now emerging in which most intellectual capital models assume a three way distinction between People, External, and Internal dimensions (Bontis,1998; Edvinsson & Sullivan, 1996; Roos et al., 1997; von Grogh & Roos, 1996; St. Onge, 1996; Stewart, 1997; Sveiby, 1997; Kaplan and Norton, 1997).

2. Accounting for Intellectual Capital

Accounting has traditionally focused its attention on capturing and representing items which can be fully objectified. Underpinned by a system of historical cost accounting which ascribes 'value' to transactions involving tangible entities, generally accepted accounting practices (GAAP) have been developed which reflect accounting's fundamental stewardship role, that is, of accounting for and informing company Reflecting this historical emphasis upon its stewardship role in relation to tangible items, accounting has found it much more difficult to deal with items which its limited conceptual framework neither recognises nor values.

In fact, since such intangible resources can never be fully objectified, accounting's cognitivist paradigm is incapable of embracing them within its ...