2. Expense Defined
Framework paragraph 70 :
Expenses are decreases in economic
benefits during the accounting period
un the form of outflows or depletions of
assets or incurrences of liabilities that
result in decreases in equity, other than
those relating to distributions to equity
participants.
3. IASB/AASB VS FASB
Expenses and Losses
Henderson, Peirson, and Brown
The FASB distinction between expenses and losses does not seem to be very
useful. It requires a judgment about whether a transaction is part of the entity’s “on
going major or central operation”. Not having to distinguish between expenses and
losses has distinct advantages . . . Management will no longer be able to decide
that an outflow of assets is a loss and omit it from the determination of operating
profit.
4. Change in assets and
Liabilities
By the nature, revenues and expenses come about
because of events in operation of the business.
• Increase in value of liabilities or decrease in the value of assets
In reality, the events increasing assets and
decreasing liabilities may be difficult to observe.
The framework definition refer to outflows or
depletions of assets or incurrences of liabilities.
5. Expenses and “Cost”
American Accounting
Association (AAA), 1957 :
• Expense is the expired cost,
directly on indirectly to a given
fiscal period, of the flow of
goods or services into the
market and of related
operations.
11. Matching concept
• Revenue recognition VS
Expense recognition
• Tidak terjadi dalam periode
yang sama
• Pembukuan di akhir tahun
12. EXPENSE MEASUREMENT
A number of decisions need to be made as how to
how expenses should be allocated across future
periods of resultant revenue
The decision criteria are meant to be supported by the
accrual accounting concept of matching expenses
agains revenues in the period they relate
IASB/AASB framework paragraph 95
“Expense are recognised in the income statement on
the basis of direct association between the cost
incured and the earning of specific items of income”
13. Associating
cause and
effect
Systematic
and
rational
allocation
Immediate
recognition
Allocation Expense
14. ASSOCIATING CAUSE AND
EFFECT
• Ideal way but difficult to prove
• Based on what appears to be reasonable observation,
accountans decide that certain goods and services used up
must have helped in the creation of revenue for that period
• Revenue recognition principles “there is no cost of sales if
there is no revenue”
– Long term construction contracts (comppleted contracts method vs
percentage of completion method)
• Critics
– Dificult to appy in practice
– Certain amount of revenue can be attributable to certain amount of
expense
15. Systematic and rational
allocation
• The aim is to recognise expenses in the accounting
periods in which the economic benefit associated
with these items are consumed or expire
(framework,para.96)
• The matching process begins by associating
expense to segments of time.
• Example: depereciation expense
• IAS 16/aasb 116 property, plant and equipment
defines depreciation as the systematic allocation of
the depreciable amount of an asset over its useful
life (par 6)
16. Systematic and rational allocation
• The depreciation method used must reflect the pattern in
which an asset’s future economic benefits are expected
to be consumed ( par 60)
• Economists : depreciation as a decline in the value of an
asset
• Accountans see long term non-current assets as
‘bundles of future services’ that become smaller and
smaller because of:
Physical factors
Economic factors
17. Immediate recognation
• If there is no strong reasons to use cause-effect
method and systematic and rational allocation
method, cost can recognised immediately as an
expense
• Contoh: advertising expense, research expenditure
• IAS 38/aasb 138 hold the view that reserach
expenditure does not meet the recognation criteria
for an asset, that is, future economic benefit are not
probable, or cannot be measured reliably
18. Patton dan Littleton menghubungkan matching of expense
against revenue dengan matching effort with
accomplishment.
Proses bisnis sebagai aliran biaya yang berakhir di laporan
laba rugi sebagai costs expire.
Sprouse meletakkan unexpired cost dalam neraca selama
mereka menunggu waktu untuk menjadi cost expire dalam
laporan laba rugi.
Mengurangi kegunaan neraca bagi pengambilan
keputusan.
Framework: matching concept should not be applied in such
a way as to allow recognition of items in balance sheet
which do not meet the definition of assets or liailities.
19. Lesser Requirement for Objective Evidence
• Acceptable practice is reasonable and appropriate,
not for objective evidence.
• Alasan lebih sedikit keharusan bagi bukti objektif
dalam mengakui expense dibandingkan dengan
revenue adalah konvensi konservatisme.
• Mencatat expenses, losses, dan liabilities
sesegera mungkin, meskipun buktinya lemah.
• Konservatisme mendasari probability dan reliability
dalam Framework.
20. • The interpretation of matching concept in
practice is biased by the effect of the
convention of conservatism.
• Konservatisme tidak berfokus pada bukti
tetapi ketakutan akan overstatement pada
net asset dan profit.
• Selain probable dan reliable, standar
mensyaratkan entitas untuk memiliki
present obligation (legal/constructive)
sebelum mengakui provisi.
21. Evaluation of Each Matching Method
Patton dan Littleton: menghubungkan sebab dan akibat
dalam matching effort ith accomplishment tidak mungkin
karena cost attach theory tidak dapat dibuktikan.
Akuntan tidak secara langsung menghubungkan cost
dengan revenue, tetapi menandingkan cost dengan interval
waktu.
Kritik pada pengatribusian sejumlah revenue terhadap
sejumlah expense.
If an asset provides benefits for several accounting periods,
its cost is allocated to the periods in systematic and rational
manner if the first matching method cannot be used.
22. Kritik atas matching cost to interval of time: penuh estimasi
dan asumsi sehingga dideskripsikan sebagai arbitrary.
Contoh: amortisasi goodwill
Immediate recognition charges many costs as expenses in
the period in which they are paid or become payable.
Kritik atas immediate recognition: membuat keputusan ini
tidak mudah. Contoh: advertising and R&D expenditures.
23. The Allocation Problem
• Thomas argues that allocations are unjustified. To be
justified, three criteria are suggested:
– Accountants defend allocations
on two grounds.
1. A given input provides
services in the current and
future periods and the cost
allocation pattern reflects the
cost of the services in the
given periods.
2. Allocated data serve a useful
purpose because readers of
accounting report find them
useful
Additivity
Unambiguity
Defensibility
24. The Allocation Problem
• Thomas insists that accountants must show that
the services provided by the given input
contributed towards a certain amount of cash
inflow or revenue or cost savings.
• He contends that the pattern of services or
contributions does not exist in the external
world.
• Whenever inputs interact, calculation of how
much revenue or cash inflow has been
contributed by each input are meaningless.
• People have been conditioned to believe that
allocated nformation is valid.
25. Defence of Allocations –
Eckel
The objective of allocations in conventional
accounting is to determine profit by a process of
matching, in particular by cause and effect.
The effectiveness of matching depends on the
existence of a unique and identifiable cause-and-effect
relationship betwees cost and revenue.
The objective of matching, however, could be
change.
26. Defence of Allocations –
Zimmerman
• Cost allocations appear to represen certain hard-to-observe
costs that arise when decision-making
responsibilities are assigned to managers within the firm.
• As long as the benefits of cost allocations exceed the
costs of cost allocations, using allocation techniques is
rational.
• Allocated fixed costs can serve as a measure for difficult-to-
calculate opportunity cost.
