Pertemuan 9 Beban
Pertemuan 9 Beban
Pertemuan 9 Beban
HODGSON
HOLMES
TARCA
CHAPTER 10
EXPENSES
Expenses defined
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Expenses defined
• The decrease in value pertains eventually to
the outflow of cash
• Expenses encompass losses as well as
expenses which arise in the course of ordinary
activities
• The distinction between abnormal and
extraordinary items is no longer permitted
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Expenses defined
• To make a definition of expenses operational,
it must be associated with a physical activity
of the entity - something it does
– production and sales generate revenue and the
using up of goods and services in support of those
functions causes expenses to occur
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Changes in assets and liabilities
• Expenses represent a value change
• Framework definition of expenses refers to
outflows or depletions of assets or incurrence
of liabilities
• Framework makes no reference to the
relationship of expenses to revenue
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Expenses and ‘costs’
• Sometimes an expense is referred to as an
‘expired cost’
• The using up of assets entails a cost - expense
- to the entity
• If there is no cost to the firm there is no
expense
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Expense recognition
• The recognition criteria for expenses are
consistent with those of the other accounting
elements
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Expense recognition
• An expense is recognised if
– it is probable that any future economic benefit
associated with the item will flow to or from the
entity; and
– the item has a cost or value that can be measured
with reliability
• prudence and neutrality
• freedom from material error and bias
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Expense recognition
• The decrease in future economic benefits
relates to a decrease in an asset or an increase
in a liability
– recognition of an expense occurs simultaneously
with the recognition of an increase in a liability or
a decrease in assets
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Expense measurement
• In measuring expenses a number of decisions
have to be made as to how expenses should
be allocated over periods of resultant revenue
– accrual accounting
– matching expenses against revenues in the period
to which they relate
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Allocation of expenses
• Revenue = accomplishment
• Expenses = effort
• For any given period, matching revenue and
expenses yields net accomplishment (periodic
profit)
• Most of the problems of profit determination
have to do with expense allocation and
matching
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Allocation of expenses
• The accountant must decide
– whether a cost pertains to future revenues and
therefore should be deferred
– whether a cost pertains to current revenues and
therefore should be written-off against that
revenue in the current period
– whether a cost, although incurred and not yet
paid, is related to current revenue and therefore
should be accrued
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Allocation of expenses
• The matching process involves the
simultaneous or combined recognition of
revenues and expenses that result directly and
jointly from the same transactions or other
events
– sales and cost of goods sold
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Allocation of expenses
• In practice, matching is
– very difficult to do
– involves a great deal of judgement
– arbitrary
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Allocation of expenses
• Three basic methods of matching
– associating cause and effect
– systematic and rational allocation
– immediate recognition
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Associating cause and effect
• The ideal way of matching is by associating
cause with effect
• Cause and effect relationships are very
difficult to prove
– reasonable observation
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Systematic and rational
allocation
• An alternative is to use a systematic and
rational allocation procedure
– associate expenses to segments of time
– the expense is assumed to correlate with the
revenue for that period
• depreciation
• Requires estimates and assumptions which
are usually arbitrary
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Immediate recognition
• Used if neither of the previous two can be
used
• Recognise the outlay immediately as an
expense
– advertising expenses
– research expenditure
– impairment expenses
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Criticisms of allocations
• The doctrine of conservatism means that
expenses, losses and liabilities are recognised
as soon possible, even if evidence for them is
weak
• The asymmetrical treatment of revenue and
expenses may create a conservative bias and
misleading financial statements
• Personal incentives may influence managers’
judgement in the allocations process
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Criticisms of allocations
• The allocations (matching) process is an
essential part of accounting practice
• The process has made the balance sheet
secondary to the income statement
• The balance sheet has become a repository
for unexpired costs
• Most of what accountants put in accounting
reports is ‘rubbish’
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Criticisms of allocations
• The allocation problem
– Thomas – allocations in accounting do not meet
the following criteria
• additivity
• unambiguity
• defensibility
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Criticisms of allocations
• Allocations are defended by accountants on
two grounds
– a given input provides services in the current and
future periods and the cost allocation pattern
reflects the cost of the services received in the
given periods
– allocated data serves a useful purpose because
readers of accounting reports, which include
allocated data, find them useful
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Criticisms of allocations
• But, allocations are ‘incorrigible’ - Thomas
– they are not capable of verification or refutation
by objective, empirical means
– the patterns of allocation do not exist in the real-
world; they exist only in the minds of accountants
– an input’s individual contribution to the output
cannot be known because all the inputs interact
with each other to generate an output
– empirical studies do not demonstrate that
allocations are useful
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Criticisms of allocations
• Alternative approaches suggested
– exit price accounting
• no allocations
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Defence of allocations
• Change the objective of allocations
• Continue with allocations only if the benefits
outweigh the costs of doing so
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Challenges for accounting
standard setters
• The IASB is aware of the allocations problem
and is tackling it in its current projects
• The plea is for reasonableness or
appropriateness and not for objective
evidence
– contradicts the recognition of revenue
– conservatism
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Issues for auditors
• Auditors face issues surrounding the
distinction between expenses and assets, the
period in which expenses are recognised, and
appropriate measurement of expenses
– concepts such as matching and conservatism are
not helpful if they distort information and reduce
its utility
– managers have incentives to distort expenses
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Summary
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Tugas
Key terms and concepts
• Expenses
• Definitions
• Economic benefits
• Recognition criteria
• Probable and reliable
• Expense measurement
• Matching
• Allocation of expenses
• Associating cause and effect
• Systematic and rational allocation
• Immediate recognition
• Criticisms of allocations
• Conservatism
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