Slide AKT 405 Teori Akuntansi 5 Godfrey

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GODFREY HODGSON HOLMES TARCA

CHAPTER 5

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Importance of measurement

Campbell:

The assignment of numerals to represent properties of material systems other than numbers

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Importance of measurement

• _{Involves linking the formal number system to}

some property of objects or events by means of semantic rules

– _{e.g. semantic rules in accounting are represented}

by transactions

• _{In accounting we measure profit by:}

– _{first assigning a value to capital}

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Scales

• _{Every measurement is made on a scale}

• _{Created when a semantic rule is used to relate} the mathematical statement to objects or

events

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Nominal scale

• _{In this scale, numbers used only as labels} • _{Numbers represent classification}

• _{e.g. numbering footballers}

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Ordinal scale

• _{In this scale, rank orders objects with respect} to a given property

– _{e.g. tallest to shortest person}

– _{e.g. investment alternatives that are ranked 1, 2, 3}

according to the size of their net present values

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Interval scale

• _{The distance between each interval is equal} and known

• _{An arbitrarily selected zero point exists on the} scale

– _{e.g. celsius temperature scale}

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Ratio scale

• _{Intervals between objects are known and} equal

• _{A unique origin exists}

– _{e.g. measurement of length}

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Permissible operations of

scales

• _{Invariance of a scale means that the}

measurement system will provide the same

general form of the variables, and the decision maker will make the same decisions

• _{This is not the case in accounting – there is} more than one accounting system

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Permissible operations of

scales

• _{Nominal and ordinal scales}

– _{no arithmetic operations}

• _{Interval scale}

– _{addition and subtraction}

• _{Ratio scale}

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Types of measurement

• _{There must be a rule to assign numbers before} there can be measurement

• _{The formulation of the rules gives rise to a} scale

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Fundamental measurements

• _{Numbers are assigned by reference to natural} laws

• _{Fundamental properties are additive}

– _{e.g. length, number and volume}

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Derived measurements

• _{Is one that depends on the measurement of} two or more other quantities

• _{Depends on known relationships to} fundamental properties

– _{e.g. the measurement of density depends on the}

measurement of both mass and volume

– _{e.g. the measurement of profit depends on the}

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Fiat measurements

• _{Typical in social sciences including accounting} • _{Based on arbitrary definitions - e.g. of profit} • _{Numerous ways in which scales can be}

constructed

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Reliability and accuracy

• _{No measurement is free of error except} counting

– _{e.g. we can count the chairs in a room and be}

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Sources of error

The sources of error include the following:

• _{Measurement operations stated imprecisely} • _Measurer

• _Instrument • _Environment

• _{Attribute unclear}

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Reliable measurement

• _{What is reliable measurement?}

– _{proven consistency}

– _{repeatable or reproducible}

– _precision

• _{Reliability incorporates two aspects}

– _{accuracy and certainty of measurement}

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Accurate measurement

• _{Consistency of results, precision and reliability} do not necessarily lead to accuracy

• _{Accuracy has to do with how close the}

measurement is to the ‘true value’ of the attribute measure - representation

• _{‘True value’ may not be known}

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Accurate measurement

• _{Many accounting measurements are on a ratio} scale

• _{This is the most informative scale}

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Measurement in accounting

• _{Two fundamental measures}

– _{capital & profit}

• _{Capital and profit can be defined & derived in} various ways

• _{Concepts of capital & profit have changed over} time

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Measurement in accounting

• _{Two notable developments in international} standards (2005, IASB)

– _{profit measurement and revenue recognition}

should be linked to timely recognition

– _{the fair value approach should be adopted as the}

working measurement principle

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Measurement issues for

auditors

• _{The focus of profit measurement has shifted} from matching revenues and expenses to

assessing the changes in the fair value of net assets

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Measurement issues for

auditors

• _{Auditors must determine whether}

management has made appropriate and reasonable valuations

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Measurement issues for

auditors

• _{It is possible for several different but reasonable}

measurements and impairment losses to be recognised by management

• _{These would all be acceptable to an auditor if}

management have

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Summary

• _{Measurement involves the formal linking of numbers to some property or} event via semantic rules

• _{Rules used to assign numbers are determined according to four scales} • _{Invariance of a scale means the measurement system will provide the}

same general form of the variables and the decision maker will make the same decisions

• _{There are three different types of measurement}

• _{Reliability refers to consistency, and accuracy refers to the representation} of a fundamental value

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Key terms and concepts

• _Measurement • _{Nominal scale} • _{Ordinal scale} • _{Interval scale} • _{Ratio scale}

• _{Invariance of a scale}

• _{Fundamental measurements} • _{Derived measurements}

• _{Fiat measurements}

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