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CONTENTSCONTENTSCONTENTSCONTENTS

Sr.

No. TITLE & NAME OF THE AUTHOR (S)Page

No.

1  ECONOMICS ANALYSIS OF SAFFRON PRODUCTION IN IRANMASSOUD KHEIRANDISH & M. V. SRINIVASA GOWDA

1

2  WHY CONSISTENCY OF ACCOUNTING STANDARDS MATTERS: A CONTRIBUTION TO THE PRINCIPLES –VERSUS - RULES DEBATE INFINANCIAL REPORTINGDR. FISSEHA GIRMAY TESSEMA

5

3  EVALUATING THE FINANCIAL SOUNDNESS OF SELECTED COMMERCIAL BANS IN SRI LANA: AN APPLICATION OF BANOMETERMODELNIMALATHASAN, B., BALAPUTHIRAN, S & PRIYA, K

12

!  A STUDY ON FDI IN SULTANATE OF OMANDR. R. DHANUSKODI 

15

5  BOARD SI"E# CHIEF COMPLIANCE OFFICER AND FINANCIAL PERFORMANCE OF BANS IN NIGERIA AHMAD BAWA ABDUL-QADIR & MANSUR LUBABAH KWANBO 

1$

%  A STUDY ON EMPLOYEE JOB SATISFACTION IN CONSTRUCTION COMPANIES IN VIETNAMNGUYEN PHI TAN 

23

  FACTORS INFLUENCE FINANCIAL DECISIONS UNDER THE PYRAMID OF NATURAL CONSTRAINTSMEHTAB ARSHAD BUTT & ROZEENA SADDAR 

2'

'  A STUDY ON UNPRINCIPLED SELLING PRACTICES TOWARDS THE PHARMACEUTICAL INDUSTRY IN INDIADHANUNJAY GONUGUNTLA, M. MURUGAN & DR. K. P. V. RAMANA KUMAR

31

$  JOB STRESS & EMPLOYEE BURNOUT: AN OVERVIEWDEEPIKA SHARMA & DR. M. L. GUPTA 

35

1(  THE CONSUMER BEHAVIOR TOWARDS PACAGE OF COSMETICSHEMAPATIL & DR. B BAKKAPA 

3'

11  NPA MANAGEMENT IN PUBLIC SECTOR BANS: A STUDY OF CANARA BAN AND STATE BAN OF INDIAK. V. RAMESH & A. SUDHAKAR

!2

12  A STUDY ON CONSUMERS PERCEPTION TOWARDS GREEN PACAGING INITIATIVES WITH REFERENCE TO CONSUMERS INPUDUOTTAI DISTRICTDR. S. SOLAIAPPAN & S. PALANIAPPAN 

5(

13  THE EMPIRICAL EVIDENCES OF SLOWDOWN OF FDI INFLOW IN INDIA SINCE 2(($PEARLY JERRY  

55

1!  CORPORATE REPORTING - IT) IMPACT ON INDIVIDUAL INVESTORSDR. P. SAIRANI & ANNIE KAVITA

%2

15  NOWLEDGE MANAGEMENT STRATEGY AND ACTION PLAN FOR SUCCESSFUL IMPLEMENTATIONC. RAMANIGOPAL 

%

1%  HUMAN RESOURCE ACCOUNTING IN INDIA – *UANTIFICATION OF *UALITATIVE FACTORS OF EMPLOYEESDR. A. CHANDRA MOHAN, S C RAJAN DANIEL & DR. N. KISHOREBABU

(

1  THE IMPACT OF ADVERTISING APPEALS ON CUSTOMER BUYING BEHAVIORGUNJAN BAHETI, DR. RAJENDRA KUMAR JAIN & NIDHI JAIN

5

1'  ASSESSMENT OF LI*UIDITY IN INDIAN PHARMACEUTICAL INDUSTRY – A STUDYK. PADMINI & C. SIVARAMI REDDY

$

1$  LI*UIDITY MANAGEMENT: AN EMPIRICAL STUDY OF CUDDAPAH SPINNING MILLS LIMITED# ADAPA +AP,N.VENKATA RAMANA

'3

2(  INTRAPRENEURSHIP AND ORGANI"ATIONAL NOWLEDGE IN THE CORPORATE ENVIRONMENT: A THEORETICAL FRAMEWORDR. LEENA JAMES

'$

21  SUGAR INDUSTRY IN INDIA – AN OVERVIEWV. RAMESH BABU & DR. M. MADHUSUDHANA VARMA

$3

22  PEPPER PRODUCTION TREND IN INDIA: AN OVERVIEWDR. P. CHENNAKRISHNAN

1(1

23  FINANCING STRATEGIES FOR SME) IN INDIA – A WAY OUT AMITESH KAPOOR

1(!

2!  BRAND LOYALTY- A MEASUREDR. Y. JAHANGIR

112

25  ANALYSIS OF LI*UIDITY# PROFITABILITY AND WORING CAPITAL MANAGEMENT - AN EMPIRICAL STUDY ON BSE LISTED COMPANIESHUMA KHAN 

11%

2% COMPLAINTS MANAGEMENT IN BANS: AN AID TO CUSTOMER SATISFACTIONDR. HARPREET KAUR KOHLI

12(

2  PERFORMANCE MANAGEMENT: A HOLISTIC RE*UIREMENT FOR ORGANI"ATIONSDR. RAJNI SINGH 

12!

2'  WOR EFFICIENCY AC*UISITION: AN IMPERATIVE NEED FOR HUMAN RESOURCE PROFESSIONALDR. L. N. ARYA & SATYAM PINCHA 

12'

2$  RETENTION AND SATISFACTION OF CONSUMERS: A STUDY OF UNIVERSITY OF JAMMU ANJU THAPA

132

3(  CUSTOMER SATISFACTION TOWARDS VARIOUS FACILITIES PROVIDED BY PUBLIC BANS +A COMPARATIVE STUDY OF PNB AND SBP INJIND DISTRICT# HARYANA,

 ANJU BALA

13%

RE*UEST FOR FEEDBAC 1!2

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CHIEF PATRON CHIEF PATRON CHIEF PATRON CHIEF PATRONPROF AGGARWAL

,h!ncellor% 6in&!y!7s 8niversity% Delhi

$ounder 9ice-,h!ncellor% #uru #obind "in&h ndr!pr!sth! 8niversity% Delhi

:; Pro 9ice-,h!ncellor% #uru J!3bheshw!r 8niversity% .is!r

FOUNDERFOUNDERFOUNDERFOUNDER PATRON PATRON PATRON PATRONLATE SH RAM BHAJAN AGGARWAL 

$or3er "t!te Minister for .o3e < =ouris3% #overn3ent of .!ry!n!

$or3er 9ice-President% D!dri :duc!tion "ociety% ,h!r>hi D!dri

$or3er President% ,hin!r "ynte; 6td (=e;tile Mills)% Bhiw!ni

CO CO CO CO- -- -ORDINATOR ORDINATOR ORDINATOR ORDINATOR

DR SAMBHAV GARG$!culty% M M nstitute of M!n!&e3ent% M!h!rishiM!r>!ndeshw!r8niversity% Mull!n!% A3b!l!% .!ry!n! 

 ADVISORS  ADVISORS  ADVISORS  ADVISORSDR PRIYA RANJAN TRIVEDI

,h!ncellor% =he #lob!l Open 8niversity% '!&!l!nd

PROF M S SENAM RAJUDirector A , D% "chool of M!n!&e3ent "tudies% #'O8% 'ew Delhi

PROF M N SHARMA,h!ir3!n% MBA% .!ry!n!,olle&e of =echnolo&y < M!n!&e3ent% ?!ith!l

PROF S L MAHANDRUPrincip!l (Retd)% M!h!r!5!A&r!sen,olle&e% J!&!dhri

EDITOR EDITOR EDITOR EDITORPROF R SHARMA

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EDITORIAL ADVISORY BOARD EDITORIAL ADVISORY BOARD EDITORIAL ADVISORY BOARD EDITORIAL ADVISORY BOARDDR RAJESH MODI

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DR SAMBHAVNA$!culty% =M% Delhi

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DR SHIVAUMAR DEENEAsst Professor% Dept of ,o33erce% "chool of Business "tudies% ,entr!l 8niversity of ?!rn!t!>!% #ulb!r&!

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 ASSOCIATE EDITORS  ASSOCIATE EDITORS  ASSOCIATE EDITORS  ASSOCIATE EDITORSPROF NAWAB ALI HAN

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8niversity% 'oid!

PROF V SELVAM""6% 9= 8niversity% 9ellore

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FINANCIAL ADVISORS FINANCIAL ADVISORS FINANCIAL ADVISORS FINANCIAL ADVISORSDICIN GOYAL

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1  EYWORDS: Abstr!ct 3ust be followed by ! list of >eywords% sub5ect to the 3!;i3u3 of five =hese should be !rr!n&ed in !lph!betic order sep!r!ted byco33!s !nd full stops !t the end

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INTRODUCTION

REVIEW OF LITERATURE

NEED>IMPORTANCE OF THE STUDY

STATEMENT OF THE PROBLEM

OBJECTIVES

HYPOTHESES

RESEARCH METHODOLOGY

RESULTS & DISCUSSION

FINDINGS

RECOMMENDATIONS>SUGGESTIONS

CONCLUSIONS

SCOPE FOR FURTHER RESEARCH

ACNOWLEDGMENTS

REFERENCES

APPENDI>ANNEURE

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ECONOMICS ANALYSIS OF SAFFRON PRODUCTION IN IRAN

MASSOUD KHEIRANDISH

LECTURER

UNIVERSITY OF GONBAD

IRAN

M. V. SRINIVASA GOWDASBM CHAIR VISITING PROFESSOR

DEPARTMENT OF IN ECONOMICS & CO-OPERATION

UNIVERSITY OF MYSORE

MYSORE

ABSTRACTTh !"#!$% $ 'h(% !)!# (% '$ )*)+% 'h $*$(% $ %)#$* !#$/"'($* (* I#)*. I' (% 0)%/ $* !#()# /)') $++'/ #$ 123 %)#$* 4#$5#% - 672 (* T$#0)'

H/)#(h )*/ 672 (* Gh)* C$"*'(% 8 %+'/ $* 'h 0)%(% $ "+'(%')4 #)*/$ %)!+(*4 'h*(9". A!)#' #$ $!"'(*4 'h !#-h')# $%'%, #'"#*% )*/

 !#$('% (* %)#$* "+'(:)'($*, 'h $*$( :()0(+(' $ %)#$* "+'(:)'($* 5)% 5$#;/ $"' 0 5$#;(*4 $"'< =6> !) 0); !#($/ =?> 0*('-$%' #)'($ =1> *' !#%*'

:)+" )*/ =@> (*'#*)+ #)' $ #'"#*. Th $*$( )*)+%(% (*/()'/ 'h)' 'h %)#$* #$! (* I#)* (% $*$()++ :()0+ )*/ !#$(')0+. Th %'"/ #:)+/ 'h)'

%)#$* "+'(:)'($* (% h(4h+ #"*#)'(: )*/ (' h)% )!+ %$! $# !+$*' 4*#)'($* )*/ (*$ *h)**' $# I#)*()* )##%. S)#$* "+'(:)'($* (%

 $"*/ '$ 0 ) +"#)'(: !#$!$%('($* $# )++ 'h )'4$#(% $ )##% (* '5$ $"*'(% 0)"% $ %"0%')*'()++ +)#4 +*' $ !#$(' (* 'h "+'(:)'($* $ 'h(% h(4h

:)+" #$!. Th $*$( )*)+%(% (* '#% $ $%' )*/ #'"#*%, NPV, BCR, !)0); !#($/, IRR, (*/()'/ 'h)' 'h #$! (% $*$()++ :()0+ )*/ !#$(')0+. A*$'h# (!$#')*' )%!' $ 'h(% h(4h :)+" #$! (% ('% (*'#*)'($*)+ $!'('(:*%%. I#)*()* %)#$* (% h(4h+ $!'('(: (* 'h 5$#+/ )#;' =Kh(#)*/(%h, ?363>.

H*, I#)*()* %)#$* )+%$ h)% 'h !$'*'()+ $ 0$(*4 )* (!$#')*' %$"# $ $#(4* h)*4 !#$:(// 'h I#)*()* G$:#**' ');% '(: )%"#% '$

(*#)% %)#$* !#$/"'($*, !#$/"'(:(' )*/ )#;'(*4 'h#$"4h #(4$#$"% #%)#h, /:+$!*' )*/ '*%($* /")'($*.

EYWORDSr!n% "!ffron% ,ost of ,ultiv!tion% Returns% Profits% 'P9% B,R% p!yb!c> period% RR

INTRODUCTION&riculture pl!ys !n i3port!nt role in the r!ni!n econo3y A3on& the different products cultiv!ted in r!n% s!ffron is ! speci!l !nd tr!dition!l product t

h!s ! specific role in non-oil product r!n&e bec!use of its hi&h price t !lso h!s ! hi&her r!n> in the !&ricultur!l econo3y of r!n due to the i3port!nce of

its production% cultiv!ted !re!% 5ob potenti!lities !nd e;port developin& !bilities r!n !ccounts for 1 percent of world production% * percent of

cultiv!ted l!nds !nd ne!rly E** tons of s!ffron t r!n>s first !3on& the s!ffron producers in the world !nd the countries in the End

 !nd further lower r!n>s !re f!r

below r!n% producin& !lto&ether not 3ore th!n E* tons !nd !ccountin& for less th!n + percent of the world7s s!ffron production

"!ffron is the 3ost popul!r !nd e;pensive spice in the world t is in de3!nd the world over bec!use of its &re!t !ro3!% colorin& c!p!city !nd proven 3edicin!l

properties !nd !lso bec!use it involves he!vily l!bour-intensive production !nd processin& =he history of s!ffron cultiv!tion d!tes b!c> to 3ore th!n 0%***ye!rs Ancient Persi!ns cultiv!ted Persi!n s!ffron in sf!h!n !nd ?hor!s!n provinces by the *th century B, (@i>ipedi!) Due to lon& e;perience of r!n in

cultiv!tion% !nd the tr!nsfer of 3ethods of &rowin& !nd h!rvestin& fro3 person to person !nd or &ener!tion to &ener!tion% r!ni!n s!ffron h!s 3!n!&ed to >eep

its distinctive u!lities in co3p!rison with th!t produced in other re&ions of the world with e;ception!l reco&nition for its fr!&r!nce% fl!vor !nd color !t the

intern!tion!l 3!r>ets (s!ffron &old E**F)

As s!ffron does not need &re!t !3ount of w!ter% its cultiv!ted !re! !nd production h!ve incre!sed in recent ye!rs subst!nti!lly so th!t 3!ny f!r3ers co3pletely

depend on s!ffron As ! l!r&e !3ount of this product is e;ported t fetches consider!ble !3ount of forei&n e;ch!n&e "o% in view of the econo3ic% historic !nd

soci!l i3port!nce !nd due to the speci!l situ!tion of r!ni!n s!ffron in the world it is i3port!nt to p!y !ttention to the econo3ic !spects of production !nd

e;portin& of s!ffron in order to enh!nce its pl!ce in the world 3!r>et

METHODOLOGY 

$or the purpose econo3ic !n!lysis of s!ffron cultiv!tion in r!n% 3ultist!&e r!ndo3 s!3plin& techniue w!s used to dr!w the ulti3!te study s!3ple =orb!t

.eyd!rieh !nd #h!en ,ounties of ?hor!s!n Provinces (R!!vi < "outhern) were purposively selected since they h!ve the l!r&est !re! !nd production of s!ffron

=he cultiv!ted !re! owned by the &rowers w!s cl!ssified into ei&ht !&e-&roups on the b!sis of the !&e of the croup% ie ye!r old% E ye!r old LLL H ye!r old n

!ll 01* s!ffron &rowers consistin& of I1 in =orb!t .eyd!rieh !nd I1 in #h!en ,ounties% !nd !lso sie &roup s3!ll% 3ediu3 !nd l!r&e were selected (=!ble )

:cono3ic vi!bility of s!ffron cultiv!tion w!s wor>ed out by deter3inin&4 () p!y b!c> period (E) benefit-cost r!tio (0) net present v!lue !nd (+) intern!l r!te ofreturn

TABLE 1: CROP AGE WISE DISTRIBUTION OF SELECTED FARMERS IN TORBAT HEYDARIEH AND GHAEN COUNTIESP8696/ Y4.8 T68. H40.84@ G@.4/

"3!ll

(up to h!)

Mediu3 (-E h!) 6!r&e

(E h! < !bove)

T6.< "3!ll (up to h!) Mediu3 (-E h!) 6!r&e(E h! < !bove)

T6.<

1)

 04.8 + H 0 15 I H E 12/ 04.8 F + E 22 * 0 2!3

8 04.8 1 0 + 22 H E 1$

!@ 04.8 0 H E 23 I E 2(5@ 04.8 1 + 0 32 E F 0 21%@ 04.8 + 22 I H E 2@ 04.8 F * 1 21 + E 25'@ 04.8 + E E 1' F + E 22T6.< %2 '' 25 15 $% %1 1' 15

 A

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E

FINANCIAL FEASIBILITY ANALYSIS$in!nci!l fe!sibility of invest3ent in s!ffron pl!nt!tion w!s !ssessed usin& the 3ethods li>e 'et Present 9!lue ('P9)% Benefit-,ost R!tio (B,R)% P!y B!n> Period

(PBP) !nd ntern!l R!te of Return (RR)

NET PRESENT VALUE +NPV,=his is considered to be ! 3ore 3e!nin&ful 3e!sure of !ppr!isin& the lon&-ter3 invest3ent propos!l !nd is useful in co3p!rin& the different invest3ent

propos!ls t is the difference between the present v!lue of net benefits !nd initi!l invest3ents f the !ppr!is!l shows 'P9 &re!ter th!n ero% the pro5ect is

econo3ic!lly vi!ble% !s it c!n &ener!te returns in e;cess of !ll the costs =he &ener!l 3!the3!tic!l for3ul! for 'P9 is &iven below

'P9 N Bt ( r) nQ Q ()

i

@here%

Bt Benefits in e!ch ye!r niti!l invest3ent

n 'u3ber of ye!rs

r Discount r!te

BENEFIT-COST RATIO +BCR,t is the r!tio of the present v!lue of net benefits to the present v!lue of !ll costs $or !n invest3ent to be worthwhile% the B,R 3ust be 3ore th!n unity

B,R N Discounted 'et ReturnsQ / N Discounted costsQ (E)

INTERNAL RATE OF RETURN +IRR,=he r!te of return th!t eu!tes the discounted flow of !nnu!l returns with the discounted flow of !nnu!l cost is the RR !nd it renders the 'P9 to ero t

indic!tes the !ver!&e e!rnin& c!p!city of !n invest3ent over the econo3ic life sp!n of !n invest3ent

PAY BAC PERIOD +PBP,=he p!y b!c> period is the len&th of ti3e in ye!rs reuired to liuid!te the invest3ent esti3!ted by su33in& up !ll the discounted net returns over the ye!rs to

3!>e up the initi!l invest3ent

COST OF CULTIVATIOND!t! on cost of cultiv!tion of s!ffron per hect!re in two 3!5or counties !nd different sie &roups !re presented in =!ble E =he 3!5or ite3 of cost incurred in

s!ffron cultiv!tion by !ll the three sie &roups of &rower% w!s the cost of hu3!n l!bour =he est!blish3ent costs durin& the first ye!r of cultiv!tion wor>ed out to

Ri!l E10%0I0%F*1% Ri!l E0%F*H%0E !nd Ri!l E0H%++F%0FH in =orb!t .eyd!rieh !nd Ri!l E01%+F%IE% EEF%E0+%111 !nd EEE%I+*%HF in #h!en for first% second !nd !

third sie &roup respectively =his 3e!ns th!t EE-E+ percent of the tot!l costs !re incurred durin& first ye!r of s!ffron cultiv!tion =he cost incurred on seed

cor3s for3ed the 3!5or co3ponent t w!s F1E0 percent% F0F percent !nd FEF percent respectively of the est!blish3ent cost in the first% second !nd third

sie &roups in =orb!t .eyd!rieh% while it w!s 1FF+ percent% 10 percent !nd 1E+ percent respectively in #h!en =he tot!l cost of cultiv!tion w!s hi&her for

the first sie &roup followed by the second !nd third sie &roups in =orb!t .eyd!rieh co3p!re to #h!en ,ounty =hus there is !n inverse rel!tionship betweenthe sie of the s!ffron f!r3 !nd the per-hect!re cost of seed cor3s

=he cost incurred on hired hu3!n l!bour !nd sh!re of the f!3ily l!bour w!s hi&her for sie &roup st followed by End% !nd 0rd sie &roups in !ll !re!s "i3il!r

trend w!s observed in the c!se of fe3!le l!bour utili!tion =he e3ploy3ent of 3ore nu3ber of f!3ily 3e3bers on s3!ll f!r3s !s co3p!red to 3ediu3 !nd

l!r&e f!r3s is due to the f!ct th!t !s the sie of the f!r3 incre!sed% the nu3ber of hired l!bourers !lso incre!sed =hus% the results indic!ted th!t the percent!&e

of hired hu3!n l!bour incre!sed with the incre!se in f!r3 sie =he e;penses on 3!nures% fertiliers% irri&!tion% pl!nt protection 3e!sures !nd 3!chine power%

etc for3ed the other cost co3ponents =he tot!l fi;ed cost r!n&ed fro3 0+ to 0I percent of the tot!l cost of cultiv!tion over the period of ei&ht ye!rs of the crop

cycle =he cost of cultiv!tion in the ei&hth ye!r !lso included e;penses on the di&&in&-out of the !&ed s!ffron cor3s !nd their cle!nin& etc% !n oper!tion usu!lly

t!>en up in the July of every ye!r Pic>in&% sep!r!tion of sti&3!s !nd dryin& !re very i3port!nt oper!tions in the cultiv!tion of s!ffron =he tot!l cost of

cultiv!tion w!s hi&her for the first sie &roup followed by second !nd third sie &roups =his w!s !lso due to the hi&her per unit overhe!d ch!r&es on s3!ller

f!r3s =hus% the e;istence of econo3ies of sc!le in the cultiv!tion of s!ffron crop w!s evident

2e!r-wise !n!lysis indic!ted th!t the cost of cultiv!tion w!s hi&her durin& the first ye!r of est!blish3ent it declined fro3 the second ye!r onw!rds in !ll the

three sie &roups% due to s!vin& in the use of v!ri!ble inputs =he results indic!ted th!t s!ffron is ! hi&hly l!bour intensive crop "ince no effective 3ethod of

3ech!nied h!rvestin& c!n be followed% this oper!tion essenti!lly c!rried out 3!nu!lly% hence resultin& in hi&h l!bour reuire3ent

=he cost of cultiv!tion of s!ffron w!s further studied by usin& !ll v!rious costs to&ether =he bre!>-up of the tot!l costs w!s !tte3pted for e!ch sie &roup in

both counties under study Different inco3e/profit!bility 3e!sures !re derived usin& cost concepts =he results h!ve been presented in =!bles 0

TABLE 2: YEAR-WISE TOTAL COST OF CULTIVATION OF SAFFRON IN TORBAT HEYDARIEH AND GHAEN COUNTIES +/ I8././ R.

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0

RETURNS FROM SAFFRON=he returns fro3 s!ffron include the returns fro3 the 3!in product% by-product !nd d!u&hter cor3s =he yield fro3 s!ffron durin& the first ye!r re3!ins very

low !nd it incre!ses consider!bly fro3 the second ye!r onw!rds =he yield fro3 d!u&hter cor3s is re!lised !t the end of the crop cycle in the ei&hth ye!r =he

results of the returns !n!lysis !re presented in =!bles 0 !nd + for =orb!t .eyd!rieh !nd #h!en

=!bles 0 !nd +% indic!te th!t s!ffron yield per hect!re w!s found to be hi&her for s3!ller f!r3s !nd 3ediu3 f!r3s !s co3p!red to l!r&e f!r3s =he hi&her

productivity of s!ffron per hect!re for s3!ll !nd 3ediu3 f!r3ers !s co3p!red to their l!r&e counterp!rts 3i&ht be due to 3ore personnel !ttention !nd use of

3ore f!3ily l!bour in f!r3 !ctivities =he &ross returns were lowest durin& the first ye!r !nd hi&hest durin& the fifth ye!r of the crop cycle% !nd there!fter

declined =he net returns were ne&!tive durin& the first ye!r !nd incre!sed sh!rply up to fifth ye!r !nd declined &r!du!lly !fterw!rds% in !ll the three sie &roups

"!r!f (E**F) reported the si3il!r results

t 3!y be noted th!t the returns durin& ei&hth ye!r were hi&h on !ccount of yield of d!u&hter cor3s !fter the co3pletion of the crop cycle otherwise s!ffron

yields were lowest durin& th!t ye!r =he s!3e trend w!s observed in !ll the three sie &roups =he net returns per hect!re were ne&!tive in the first ye!r%obviously due to hi&h e;penditure on seed cor3s !nd l!bour% !nd lower yield of s!ffron =he &ross returns fro3 s!ffron !lso included inco3e fro3 by product

=he results !re in !ccord!nce with the findin&s of #horb!ni (E**H) =he cost of production of s!ffron 3!in product !nd by product per Mes&h!l (+FHI1 &3) w!s

ev!lu!ted !nd the results indic!ted th!t cost of production w!s hi&hest durin& the first ye!r% due to low yield !nd hi&h cost% in !ll the three sie &roups of !re!s

n the c!lcul!tion of cost of production% the v!lue of seed cor3s h!s been t!>en into !ccount =he cost of production of s!ffron !lso included the 3!r>etin&

ch!r&es borne by the &rower

ECONOMIC VIABILITY OF SAFFRON CULTIVATION:cono3ic vi!bility of s!ffron cultiv!tion w!s wor>ed out by deter3inin&4 () p!y b!c> period (E) benefit-cost r!tio (0) net present v!lue !nd (+) intern!l r!te of

return =he results !re presented in =!ble 1

=he econo3ic vi!bility of s!ffron enterprise w!s e;!3ined for the crop cycle of ei&ht ye!rs =he results indic!ted th!t PBP w!s !round + ye!rs for !ll the three

sie &roups =his 3e!ns th!t the ti3e reuired to fully recover the cost incurred in s!ffron cultiv!tion is the fourth ye!r of cultiv!tion =he 'P9 w!s wor>ed out

discountin& both the costs !s well !s returns !t E percent r!te of interest =he !ver!&e 'P9 for =orb!t .eyd!rieh w!s re!son!bly hi&her th!n for #h!en% which

w!s c!lcul!ted !s Ri!l IF%I1F%+H1 !nd Ri!l F1%I*%+ !t E percent respectively

=he net present v!lue for =orb!t .eyd!rieh !t E percent discountin& r!te w!s hi&her !t Ri!l HF%1F%1+I for the first sie &roup% Ri!l I+%F%**for the second

sie &roup !nd Ri!l FH%F0%*I for the third sie &roup =he net present v!lue for #h!en !t E percent discountin& r!te w!s c!lcul!ted !t Ri!l I+%F+*%*I% Ri!l

F1%0+H%EH+ !nd Ri!l 1I%0H%1 for the first% second !nd third sie &roups respectively =he invest3ent in s!ffron cultiv!tion showed positive net presentv!lues !nd re!son!bly hi&her returns !t E percent discountin& r!te

=he benefit-cost r!tios for different sie &roups were esti3!ted !s E+% EE !nd E* !t E percent discountin& r!te% for the first% second !nd third sie &roups

respectively in =orb!t .eyd!rieh =he B,R7s !t E percent discountin& r!te esti3!ted for #h!en were EF% E1 !nd E for the first% second !nd third sie

&roups respectively =he undiscounted benefit-cost r!tios were found to the E1% E1* !nd E+F for the first% second !nd third sie &roups respectively in =orb!t

.eyd!rieh% while for #h!en they were !s E1H% E1I !nd E1E for the first% second !nd third sie &roups respectively

Benefit cost r!tios on !n !ver!&e in two counties were esti3!ted !t EE percent !nd E+ respectively =his indic!ted th!t !t the prev!ilin& r!te of interest% !n

invest3ent of Ri!l *** fetched ! return of Ri!l EE !nd E+ !t E percent discountin& r!te =he undiscounted !ver!&e B,R w!s c!lcul!ted !t E+ !nd E1F for

=orb!t .eyd!rieh !nd #h!en respectively "ince the B,R w!s &re!ter th!n one% it showed th!t the invest3ent in s!ffron cultiv!tion w!s econo3ic!lly vi!ble

=hus% !ll the indic!tors 3e!sured showed th!t s!ffron cultiv!tion w!s econo3ic!lly vi!ble in the study !re!

=o find the RR% the v!lues were discounted till the difference between the su3s of discounted stre!3s of returns !nd costs &ot reduced either to ero or to !

lowest 3ini3u3 t w!s found th!t the intern!l r!te of return in =orb!t .eyd!rieh w!s I1 percent which h!s 3ore th!n in #h!en with FF percent

=he intern!l r!tes of return were esti3!ted !t II percent% I+ percent !nd I0 percent for the first% second !nd third sie &roups of =orb!t .eyd!rieh s!ffron

f!r3s respectively !nd the !ver!&e intern!l r!te of return (RR) w!s c!lcul!ted !s I1 percent t w!s found th!t for #h!en the intern!l r!tes of return !t E

percent discountin& r!te were FF percent% FF percent !nd F1 percent for the first% second !nd third sie &roups% the !ver!&e wor>in& out to FF percent

Any enterprise to be econo3ic!lly vi!ble 3ust h!ve benefitcost r!tio (B,R) 3ore th!n unity% ! positive net present v!lue ('P9) !nd ! short p!y b!c> period t isobvious fro3 the results th!t !ll these conditions were fulfilled in s!ffron cultiv!tion !nd hence it could be inferred th!t s!ffron cultiv!tion in r!n is econo3ic!lly

vi!ble

TABLE 5: MEASURE OF ECONOMIC VIABILITY OF SAFFRON CULTIVATION IN TORBAT HEYDARIEH AND GHAEN +48 @49.84,

E96/69 V.

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+

REFERENCES  B!r!fsh!n J :br!hi3-S!deh % E**I% =he An!lysis of "!ffron "p!ti!l- Position!l :;tension in r!n with :3ph!sis on ?hor!s!n% Journ!l of #eo&r!phy And

Develop3ent% $!ll-@inter +(H)4 ppII-E

E  #horb!ni% M% E**I% =he :cono3ics of "!ffron in r!n% ntern!tion!l "y3posiu3 on "!ffron Biolo&y !nd =echnolo&y% Act! .orticulture% 'oI0

0  .osseini% M .e3!ti ?!>h>i% A ?!rb!si A-R% E**% "tudy of "ocio-:cono3ic :ffects of =en 2e!rs Rese!rch on "!ffron (,rocus "!tivus 6)% ntern!tion!l

"y3posiu3 on "!ffron4 $orthco3in& ,h!llen&es in ,ultiv!tion% Rese!rch !nd :cono3ics% Act! .orticultur!e% 'oH1*

+  Moll!fil!bi A% E**+% Production technolo&y !nd processin& of "!ffron (,rocus s!tivus 6) in r!n Ministry of "cience% Rese!rches !nd =echnolo&y - ?hor!s!n

1  "!bori Bil!ndy% M !nd 9!diey A% E**F% :cono3ic study on s!ffron in #on!b!d% Fth '!tion!l "e3in!r on A&ricultur!l :cono3ics% H th to th% Oct M!shh!d%

r!n

F  "!ffron #old E**F% http4//wwws!ffron&oldfcou>/wh!tisht3l

I  "!r!f% "!5!d Abdull!h% E**F% :cono3ics An!lysis of Production !nd M!r>etin& of "!ffron in J < ?% PhD =hesis% Dep!rt3ent of A&ricultur!l :cono3ics !nd

Rur!l "ociolo&y% All!h!b!d A&ricultur!l nstitute-Dee3ed 8niversity% ndi!

H  =or>!3!ni% J% E***% :cono3ic !n!lysis of production% technic!l efficiency !nd 3!r>etin& of r!ni!n "!ffron Journ!l of "cience !nd =echnolo&y of

A&riculture !nd '!tur!l Resources% +40% E-+1

  @i>ipedi!%.istory of s!ffron cultiv!tion%http4//si3plewi>ipedi!or&/ wi>i/.istory of s!ffron cultiv!tion

*  ?heir!ndish% E**% Production !nd M!r>etin& of "!ffron in r!n An :cono3ic An!lysis% PhD =hesis sub3itted to 8niversity of Mysore in 'ove3ber E**

TABLESTABLE 3: YEAR-WISE TOTAL COST OF CULTIVATION# GROSS RETURNS# AND NET RETURNS FROM SAFFRON IN TORBAT HEYDARIEH COUNTY

Y4.8 6P

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1

WHY CONSISTENCY OF ACCOUNTING STANDARDS MATTERS: A CONTRIBUTION TO THE PRINCIPLES –VERSUS - RULES DEBATE IN FINANCIAL REPORTING

DR. FISSEHA GIRMAY TESSEMA

DEPARTMENT OF ACCOUNTING & FINANCE

COLLEGE OF BUSINESS & ECONOMICS

MEKELLE UNIVERSITY

MEKELLE

ABSTRACTC"##*'+, 'h I*'#*)'($*)+ A$"*'(*4 S')*/)#/% B$)#/ =IASB> )*/ F(*)*()+ A$"*'(*4 S')*/)#/% B$)#/ =FASB> )# "*/#');(*4 ) !#$' '$ /:+$! ) $$*

$*!'")+ #)5$#; 'h)' (% 0$'h $!+' )*/ (*'#*)++ $*%(%'*'. S"h ) #)5$#; 5$"+/ !#$:(/ ) %$"*/ $"*/)'($* $# /:+$!(*4 "'"# )$"*'(*4

%')*/)#/% )*/ (% %%*'()+ '$ "+(++(*4 'h B$)#/% 4$)+ $ /:+$!(*4 %')*/)#/% 'h)' !#(*(!+%-0)%/, (*'#*)++ $*%(%'*', (*'#*)'($*)++ $*:#4/, )*/ 'h)'

+)/ '$ (*)*()+ #!$#'(*4 'h)' !#$:(/% 'h (*$#)'($* *// $# (*:%'*', #/(', )*/ %((+)# /(%($*%. Th)' #)5$#;, 5h(h 5(++ /)+ 5('h ) 5(/ #)*4

$ (%%"%, 5(++ 0"(+/ $* 'h (%'(*4 IASB )*/ FASB #)5$#;% )*/ $*%(/# /:+$!*'% %(* 'h (%%"/ 'h(# $#(4(*)+ #)5$#;%. A* $:#:(5 $ 'h

(!$#')* $ 'h F#)5$#;, 5h 'h (%'(*4 F#)5$#; /$% *$' "++ ' 'h */% $ 'h IASB, FASB, )*/ $'h# )$"*'(*4 %')*/)#/ %''#%, )*/ 'h */

'$ #:(%(' /$"*' )# /(%"%%/ (* B"++* )*/ C#$$; =?332> )*/ J$h*%$* =?33@). 0. )*/ ?332>.. A% !+)(*/ (* 'h% IASB )*/ FASB %') !)!#%, %:#)+ 4)!% (*

'h F#)5$#; */ '$ 0 "+(++/ )*/ ) *"0# $ )#)% */ '$ 0 "!/)'/. A #$%%-(# $*%(%'*' )!!+()'($* $ )$"*'(*4 %')*/)#/% (% %$"4h' (* )++ )$#

)$"*'(*4 %%'%. S(* )* '#)*%)'($*% )*/ :*'% )# $*+ :)4"+ $# *$' !+(('+ )//#%%/ (* 'h %')*/)#/% )*)4#% "%' $'* "% "/4*' 5h*

)!!+(*4 )$"*'(*4 %')*/)#/% '$ !)#'("+)# '#)*%)'($*% $# :*'%. Th(% )*)+%(% $*+"/% 'h)' ) $*%(%'*' )!!+()'($* $ )$"*'(*4 %')*/)#/% )* $*+ 0

*%"#/ ( 'h )$"*'(*4 %')*/)#/% 'h%+:% )# (*'#*)++ $*%(%'*'. B $*'#)%', (*$*%(%'*' %')*/)#/% (* 'h )0%* $ +)# 4"(/)*!#('

)*)4#% '$ =$# $# +%% )#0('#)#(+> h$$% 0'5* /(#*' )$"*'(*4 'h$/%. M$#$:#, (' (% $"*/ 'h)' ) $*%(%'*' )!!+()'($* !#%"!!$%% 'h(%'* $ %!(( 4"(/)* =#"+%> (* $#/# '$ #) )*)4*'% "/4*'. I' (% )#4"/ 'h)' 'h #+()* $* !#(*(!+% $*+)% #9"%'/ 0 )* (* 'h

)$"*'(*4 +('#)'"#)(+% '$ *%"# ) $*%(%'*' )!!+()'($* 0)"% (' )++$5% )*)4*' '$ #' "/4*' /(#*'+ (* (/*'()+ )%%. Th )%%%%*'

(*+"/% )#4"*'% )*/ !#$!$%('($*% #$ 'h (*'#*)'($*)+ /(%"%%($* (* 'h )$"*'(*4 +('#)'"# )*/ )+%$ ##% '$ $'h# #+)'/ (+/% $ #%)#h, %"h )% +4)+

'h$#.

EYWORDS,onceptu!l fr!3ewor> Accountin& ,hoices Principles vs Rules Deb!te "t!nd!rd "ettin&

1 INTRODUCTIONver since the occurrence of !ccountin& sc!nd!ls such !s :nron in the be&innin& of the 3illenniu3% the principles-versus-rules deb!te h!s been on top of

the !&end! of securities re&ul!tors% especi!lly of the 8" "ecurities !nd :;ch!n&e ,o33ission (":,)% !nd of n!tion!l !nd intern!tion!l st!nd!rd setters

!nd !ccount!ncy bodies% such !s the 8" $in!nci!l Accountin& "t!nd!rds Bo!rd ($A"B)% the ntern!tion!l Accountin& "t!nd!rds Bo!rd (A"B)!nd the

nstitution of ,h!rtered Account!nts of ndi! ($A"B%E**E%E**+ =weedie% E**E% E**1% ":,% E**0 ,A% E**F) =he topic h!s been controversi!l in n!tion!l !nd

intern!tion!l 5ourn!ls

=he ori&ins of the discussion &o b!c> to the e!rly twentieth century 8ntil then% pr!ctitioners in the 8" !nd elsewhere f!iled to i3ple3ent unifor3 !ccountin&st!nd!rds =hey !r&ued th!t the choice of !ccountin& 3ethods% which !ppropri!tely reflect the econo3ic subst!nce of specific tr!ns!ctions !nd events% reuires

the use of profession!l 5ud&3ent (Previts !nd Merino% H% p F0) =h!t is% Cthe !pplic!tion of relev!nt >nowled&e !nd e;perience% within the conte;t provided

by !ccountin& st!nd!rds in re!chin& decisions where ! choice 3ust be 3!de between !ltern!tive possible courses of !ction7 (M!son !nd #ibbins% HH)

.owever% with the prolifer!tion of different opinions !bout the proper !ccountin& 3ethods !nd the cr!sh of the 8" stoc> 3!r>et in E% there w!s ! c!ll for

the est!blish3ent of unifor3 !ccountin& st!nd!rds which would li3it 3!n!&e3ent7s use of profession!l 5ud&3ent !nd enh!nce the co3p!r!bility of fin!nci!l

st!te3ents (Previts !nd Merino% H% pp F et se) "ince then it h!s been widely !ccepted th!t Cby !rticul!tin& the best thin>in& !bout the issues% !ccountin&

st!nd!rds will produce better fin!nci!l reportin&% !t le!st on the !ver!&e% th!n would e;ist in their !bsence7 (M!son !nd #ibbins% % p E) n the 8" the c!ll

for co3p!r!bility h!s% !3on&st other thin&s% led to wh!t 3!y be c!lled !n e;cessive overre&ul!tion As ! conseuence of the corpor!te !ccountin& sc!nd!ls

so3e of the !ccountin& liter!ture e;presses concerns with rules-b!sed !ccountin& !nd there !re incre!sin&ly c!lls for ! principles-b!sed !ppro!ch to st!nd!rd

settin& ($A"B% E**E% E**+ ":,% E**0)

Another topic th!t pl!ys ! 3!5or role in the pl!nned refor3!tion of the world7s prev!ilin& !ccountin& syste3sT$R" !nd 8" #AAPTis the eli3in!tion of

inconsistencies !nd thus the uest for intern!l consistency of the respective syste3s (A"B% E**H% P+% B,E+F) =he !ccountin& liter!ture distin&uishes between

two notions of consistency4 on the one h!nd intern!l consistency of !ccountin& st!nd!rds% !nd on the other h!nd consistency in the !pplic!tion of those

st!nd!rds @hile intern!l consistency reuires th!t C!ny individu!l st!nd!rd !dopted should be consistent with the e;istin& syste3 of st!nd!rds7)% consistency in

the !pplic!tion Crefers to use of the s!3e !ccountin& policies !nd procedures% either fro3 period to period within !n entity or in ! sin&le period !cross entities7(A"B% E**H% U,F)

ntern!l consistency !s well !s !pplic!tion consistency !cross co3p!nies h!s tr!dition!lly been sou&ht in !ll 3!5or !ccountin& syste3s nterestin&ly% the re!sons

for the pursuit of this ob5ective !re uite different in different syste3s $A"B ,oncepts "t!te3ent 'o E proposes th!t the 8" ,onceptu!l $r!3ewor> Cis !

coherent syste3 of interrel!ted ob5ectives !nd fund!3ent!ls th!t is e;pected to le!d to consistent st!nd!rds7 !nd e3ph!sies the need for ! cross-fir3

consistent choice of !ccountin& policies by st!tin& th!t Cthe public is n!tur!lly s>eptic!l !bout the reli!bility of fin!nci!l reportin& if two enterprises !ccount

differently for the s!3e econo3ic pheno3en!7 (,O' EF) t e;pl!ins the need for consistency in rel!tion to co3p!r!bility4 C,o3p!r!bility between enterprises

!nd consistency in the !pplic!tion of 3ethods over ti3e incre!ses the infor3!tion!l v!lue of co3p!risons of rel!tive econo3ic opportunities or perfor3!nce7

(,O' E) n their dr!ft for ! revised conceptu!l fr!3ewor> the $A"B !nd the A"B si3il!rly point out th!t C!lthou&h ! sin&le econo3ic pheno3enon c!n be

f!ithfully represented in 3ultiple w!ys% per3ittin& !ltern!tive !ccountin& 3ethods for the s!3e econo3ic pheno3enon di3inishes co3p!r!bility !nd%

therefore% 3!y be undesir!ble7 (A"B% E**H% U,)

One c!n observe th!t the different notions of consistency !re rel!ted in such ! w!y th!t consistency in the !pplic!tion of !ccountin& st!nd!rds !cross co3p!nies

c!n only be !chieved if the st!nd!rds !re intern!lly consistent n ! syste3 th!t provides cle!r rules for e!ch !nd every !ccountin& issue !nd in which the

!pplic!tion of the rules does not reuire the use of !ny 5ud&3ent% intern!l consistency between the rules would not be reuired bec!use consistency in the

!pplic!tion !cross co3p!nies would be !chieved !nyw!y (AAA $A",% E**0% p I+) .owever% such ! syste3 does not e;ist =he continuous issu!nce of new

!ccountin& st!nd!rds !nd interpret!tions in rules-b!sed syste3s% such !s 8" #AAP reve!ls th!t there !re !lw!ys issues not covered by !ny e;istin& rule !s well

!s rules the !pplic!tion of which reuires 3!n!&e3ent to use 5ud&3ent (Penno% E**H% p 00) n 3ore principles-b!sed syste3s% li>e $R"% the !pplic!tion of

hi&h-level principles to specific !ccountin& issues de3!nds the e;ertion of 5ud&3ent in 3!ny c!ses

n p!rticul!r 5ud&3ent is necess!ry either if ! tr!ns!ction or event is not covered by !ny !ccountin& st!nd!rd or if it is only !ddressed by r!ther bro!d principles

n such c!ses 3!n!&e3ent sh!ll% !ccordin& to $R"% develop !n !ccountin& policy or interpret the principle by reference to the reuire3ents !nd &uid!nce in

 E

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st!nd!rds de!lin& with si3il!r !nd rel!ted issues f the st!nd!rds !ddressin& si3il!r tr!ns!ctions or events !re not consistent with e!ch other% different

co3p!nies 3!y 3!>e different interpret!tions !nd choices !nd thus !pply different !ccountin& policies to identic!l c!ses Rese!rchers supportin& principles-

b!sed !ccountin& st!nd!rds !r&ue th!t the restriction of 3!n!&e3ent7s 5ud&3ent th!t follows fro3 the ob5ective to !chieve ! consistent !pplic!tion 3!y

so3eti3es i3p!ir the relev!nce of fin!nci!l reportin& infor3!tion% which they re&!rd to be 3ore i3port!nt th!n consistency !nd co3p!r!bility (Ale;!nder !nd

Jer3!>owic% E**F% p 1*)

Obviously% the rule-versus-principles deb!te !nd the discussion on consistency !re rel!ted Our !rticle contributes to this deb!te by !ddressin& two 3!5or issues

niti!lly% the tr!dition!l uest for consistency in the !pplic!tion of !ccountin& st!nd!rds is ! &iven !nd the !n!lysis considers how the current $R" syste3 would

h!ve to be ch!n&ed with re&!rd to intern!l consistency of !ccountin& st!nd!rds !s well !s to the rel!tionship between principles !nd rules in order to !chieve

consistent !pplic!tion =he e3ph!sis then is on present !nd possible future $R"% but 8"#AAP is relied on !lso bec!use 3ost of the !r&u3ents brou&ht forw!rd

in the co3prehensive 8" !ccountin& liter!ture eu!lly !pply to $R" $R" !nd 8"#AAP !re p!r!di&3!tic for !ccountin& syste3s under which the !ccountin&

re&ul!tion is developed by priv!te st!nd!rd-settin& institutions !nd do not h!ve i33edi!te le&!l st!tus=he second 3!5or rese!rch uestion !ddressed is whether the benefits of principles-b!sed !ccountin& st!nd!rds% such !s !n incre!se in relev!nce% outwei&h the

loss of consistency in the !pplic!tion $or this discussion% the previous !ssu3ption of consistent !pplic!tion of !ccountin& st!nd!rds by !ll co3p!nies is rel!;ed%

en!blin& critic!l discussion of the !dv!nt!&es !nd dis!dv!nt!&es of principles-b!sed !nd rules-b!sed !ccountin& st!nd!rds $or re!sons of co3p!r!bility%

enforce!bility !nd ob5ectivity of fin!nci!l reportin& infor3!tion% it is concluded to be i3port!nt to h!ve specific (intern!lly consistent) !ccountin& reuire3ents

th!t li3it 3!n!&e3ent 5ud&3ent in the !pplic!tion of !ccountin& st!nd!rds to ide!lly only one possible !ccountin& 3ethod @e !c>nowled&e% however% th!t

this 3!y% in so3e situ!tions% le!d to !n i3p!ired relev!nce of fin!nci!l reportin& infor3!tion

TOWARDS CONSISTENCY IN NORMATIVE ACCOUNTING FRAMEWORS=he uest for intern!l consistency is shown here to h!ve developed in different !ccountin& syste3s @e conclude th!t ! consistent !pplic!tion of !ccountin&

st!nd!rds does not only presuppose the e;istence of intern!l consistency of hi&h-level concepts !nd principles% but !lso th!t the rule 3!>er (!nd 3!n!&ers in

the !bsence of specific &uid!nce) !pplies the concepts !nd principles consistently to !ll co3p!r!ble !ccountin& issues =his i3plies th!t in !n intern!lly

consistent !ccountin& syste3 there is% in principle% for e!ch tr!ns!ction !nd event only one !ccountin& 3ethod th!t !ccords to the hi&h-level principles !s well !s

to the specific &uid!nce rel!tin& to co3p!r!ble !ccountin& issues !nd thus consistently fits into the entire Csyste37 of nor3s

8" #AAP% !nd !lso $R" !ll reuire the use of 5ud&3ent in the !pplic!tion of !ccountin& st!nd!rds/nor3s Bo!rd 3e3bers !nd 3!n!&ers under 8" #AAP !nd

$R" !re supposed to b!l!nce between !nd !pply the &ener!l concepts to specific c!ses !ccordin& to their person!l profession!l 5ud&3ent% which 3!y differ fro3

c!se to c!se =his i3plies th!t for so3e issues there 3!y be sever!l different !ccountin& 3ethods th!t !re !ll in co3pli!nce with the $r!3ewor> !nd betweenwhich the Bo!rd 3e3bers or 3!n!&e3ent 3!y hence choose

,onsistent !pplic!tion i3plies th!t co3p!r!ble issues !re !ccounted for in the s!3e w!y !cross co3p!nies ("chipper% E**0% p FE) @e !r&ue th!t this c!n only

be !chieved if st!nd!rd setters (!nd 3!n!&ers in the !bsence of cle!r &uid!nce) tr!de-off between !nd !pply the &ener!l concepts% such !s relev!nce !nd

reli!bility% !s well !s the &ener!l reco&nition !nd 3e!sure3ent principles consistently to !ll co3p!r!ble c!ses n !n intern!lly consistent !ccountin& syste3

there c!n be hence for e!ch !ccountin& issue only one !ccountin& 3ethod th!t !ccords to the hi&h-level concepts principles !s well !s to the specific &uid!nce

rel!tin& to co3p!r!ble !ccountin& issues

IMPOSSIBILITY OF CONSISTENCIESAle;!nder !nd Ale;!nder !nd Jer3!>owic (E**F) point out th!t !ccountin& Cis 3ost cert!inly not ! pure science7 !nd conclude th!t Cintern!l consistency% !s !n

!bsolute% is si3ply not possible7 n !nother !rticle Ale;!nder (E**F) cl!i3s th!t co3p!nies7 indifferent countries will !pply $R" inconsistently in identic!l c!ses

!nd th!t the enforce3ent of !ccountin& re&ul!tion 3ust !ccept this @e !&ree th!t !ccountin& is not ! Cpure science7 (see !bove) !nd th!t !bsolute consistency

of !ll !ccountin& principles is not !chiev!ble ndisput!bly% one c!n !lso !&ree with Ale;!nder7s !ssu3ption th!t $R" will never be interpreted !nd !pplied fully

consistently by !ll co3p!nies .owever% !s in the c!se of other ide!ls% such !s 5ustice% eu!lity !nd freedo3% the i3possibility of !chievin& !bsolute intern!l

consistency does not% fro3 ! nor3!tive perspective% i3ply th!t consistency between !ccountin& nor3s !nd their consistent !pplic!tion is not to be desired 'or

does it i3ply th!t on ! co3p!r!tive b!sis there c!nnot be 3ore consistent !nd less consistent !ccountin& nor3s

THE ROLE OF CONSISTENCY IN THE IFRS SYSTEM@e now turn to e;plorin& how f!r intern!l consistency is !chieved in the $R" syste3 =he A"B $r!3ewor> is shown to cont!in contr!dictory ob5ectives !ndu!lit!tive ch!r!cteristics !s well !s conflictin& &ener!l concepts !nd principles As ! result% "t!nd!rds !nd nterpret!tions de!lin& with si3il!r !nd rel!ted issues

!re p!rtly inconsistent $ro3 this findin& one c!n infer th!t ! consistent !pplic!tion of $R" is currently not ensured $in!lly% the A"B7s efforts tow!rds the

eli3in!tion of the described inconsistencies !re presented

THE *UALITATIVE CHARACTERISTICS RELEVANCE AND RELIABILITYt is cle!r the A"B strives for consistency of its st!nd!rds Accordin& to the Pref!ce to ntern!tion!l $in!nci!l Reportin& "t!nd!rds Cthe ob5ective of the

$r!3ewor> is to f!cilit!te the consistent !nd lo&ic!l for3ul!tion of $R"s7 (P!r! H) Moreover% in their propos!l of ! revised conceptu!l fr!3ewor> the $A"B !nd

the A"B note th!t Cintern!l consistency of !ccountin& st!nd!rds is desir!ble !nd th!t it should n!tur!lly result fro3 developin& st!nd!rds th!t !re consistent

with the s!3e conceptu!l fr!3ewor>7 (A"B% E**H% B,E+F) ,onsistent with the 8" ,onceptu!l $r!3ewor> the A"B $r!3ewor> (H) points out th!t the

Bo!rd 3e3bers in the st!nd!rd settin& process !nd 3!n!&ers when developin& !ccountin& policies for unre&ul!ted issues need to tr!de-off between u!lit!tive

ch!r!cteristics% especi!lly relev!nce !nd reli!bility ($@+1) .owever% !t present% there is no un!ni3ous !&ree3ent on wh!t constitutes relev!nt !nd reli!ble

infor3!tion or on how to tr!de-off !deu!tely between the two u!lit!tive ch!r!cteristics (Johnson% E**1% p ) And 3ore recently% the uestion of whether

such ! tr!de-off should e;ist h!s been r!ised @hether !n !ccountin& 3ethod provides relev!nt infor3!tion depends% !3on&st other thin&s% on the ob5ective of

fin!nci!l st!te3ents !nd the underlyin& e;plicit or i3plicit !ccountin& theory f% !s !ccordin& to "prouse !nd Moonit (FE)% the ob5ective of fin!nci!l

st!te3ents is to provide infor3!tion !bout the fin!nci!l position !nd ch!n&es in the fin!nci!l position of !n enterprise% infor3!tion !bout the enterprise7s

we!lth !s indic!ted by its resources (!ssets) !nd obli&!tions (li!bilities) is considered !s relev!nt (!ssets/li!bilities view) f% !s !ccordin& to P!ton !nd 6ittleton

(+*4 F1)% the ob5ective of fin!nci!l st!te3ents is to provide infor3!tion !bout the perfor3!nce of !n enterprise% infor3!tion !bout the enterprise7s

efficiency in obt!inin& inputs to produce !nd sell outputs !s indic!ted by net periodic profit is re&!rded !s relev!nt (revenue/e;pense view) =he differences of

the two ob5ectives !nd the rel!ted !ccountin& theories !s well !s% !r&u!bly% the i3possibility to pursue both !t the s!3e ti3e h!s been evidenced in the An&lo-

A3eric!n liter!ture on !ccountin& theory since the E*s !nd l!tely Ronen (E**H% p H+1) !re e;!3ples in the An&lo-A3eric!n liter!ture

=he e;istin& A"B $r!3ewor> cont!ins both opposin& !nd inconsistent ob5ectives ($@1 A" I) As ! conseuence% st!nd!rds cont!in reco&nition !nd

3e!sure3ent principles th!t reflect different !ccountin& theories !nd !re thus so3eti3es inconsistent =he followin& e;!3ple illustr!tes the resultin&

inconsistencies4 =he A"B h!s &iven priority to the revenue/e;pense view in the reco&nition of &overn3ent &r!nts% since the correspondin& inco3e sh!ll be

!lloc!ted over the periods necess!ry to 3!tch the3 with the rel!ted costs (A" E*E By contr!st% in the c!se of biolo&ic!l !ssets the A"B h!s &iven priority to

the !ssets/li!bilities view bec!use inco3e sh!ll be reco&nied independently fro3 the incurrence of the costs when !n incre!se in we!lth (indic!ted by !n

incre!se in the !sset7s f!ir v!lue) h!s t!>en pl!ce (A" +E% +EF)

$urther3ore% the e;istin& A"B $r!3ewor> does not Cconvey L the 3e!nin& of reli!bility cle!r enou&h to !void 3isunderst!ndin&s7 (A"B% E**H% B,E) =he

A"B (E**1!) notes th!t Cfor 3!ny Bo!rd 3e3bersQ% the 3e!nin& see3s to be verifi!bility% for so3e its precision% for so3e% it 3!y be f!ithful represent!tion% for

! few perh!ps !ll of those plus neutr!lity A3on& constituents% the differences in 3e!nin& !re 3uch &re!ter

n c!ses where the u!lit!tive ch!r!cteristics CRelev!nce7 !nd CReli!bility7 su&&est different !ccountin& policies% the A"B in the st!nd!rd settin& process !nd

3!n!&ers in the develop3ent of !ccountin& policies when no $R" !ddresses the p!rticul!r tr!ns!ction or event% need to tr!de-off between the two u!lit!tive

ch!r!cteristics($@+1) =he A"B $r!3ewor> does not provide &uid!nce on how to b!l!nce relev!nce !nd reli!bility% but r!ther reuires 3!n!&ers to find !n

!ppropri!te b!l!nce between the ch!r!cteristics by usin& their profession!l 5ud&3ent ($@+1) n the !bsence of le&!l li!bility this 3!y be toler!ble #iven the

thre!t of different !ssess3ents in court this i3poses !n undesir!ble ris> on 3!n!&e3ent even if !ssess3ent !nd !pplic!tion !re done in &ood f!ith

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=he $A"B points out th!t Cno consensus c!n be e;pected !bout their rel!tive i3port!nce in ! specific situ!tion bec!use different users h!ve or perceive the3-

selves to h!ve different needs !nd% therefore% h!ve different preferences7 (,O'E+1) =he diver&in& opinions !bout the rel!tive i3port!nce of relev!nce !nd

reli!bility in the !ccountin& liter!ture confir3 this st!te3ent $or e;!3ple% :rnst in&7 One 3!y conclude fro3 these findin&s th!t the u!lit!tive ch!r!cteristics of relev!nce !nd reli!bility do

not en!ble Bo!rd 3e3bers !s well !s 3!n!&ers in the !bsence of cle!r &uid!nce to consistently e;ercise their profession!l 5ud&3ent in the develop3ent !nd

!pplic!tion of !ccountin& policies rel!tin& to co3p!r!ble issues

THE GENERAL DEFINITIONS# RECOGNITION CRITERIA AND MEASUREMENT CONCEPTS"olo3on7s (HF% pp E*) !nd Dopuch !nd "under (H*% pp FI) de3onstr!te by reference to pension obli&!tions !nd deferred t!;es th!t the li!bility

definition under 8" #AAP is too bro!d to be helpful in choosin& between different !ccountin& policies =his criticis3 !lso !pplies to the l!r&ely co3p!r!ble

li!bility definition !nd other fin!nci!l st!te3ent ele3ents definitions in the A"B $r!3ewor> ($@F*) $or e;!3ple% !ccordin& to $@I* (!) inco3e !rises fro3

inflows or incre!ses of !ssets or decre!ses of li!bilities .owever% only so3e incre!ses of !ssets% such !s incre!ses in the f!ir v!lue of cert!in fin!nci!l

instru3ents (A" 011(!)) !nd biolo&ic!l !ssets(A" +EF)% &ive rise to inco3e% while others% such !s incre!ses in the f!ir v!lue of !v!il!ble-for-s!le fin!nci!l

!ssets (A" 011(b)) !nd incre!ses in the c!rryin& !3ount of property% pl!nt !nd euip3ent (A" F0) !nd int!n&ible !ssets (A"0HH1) resultin& fro3 !

rev!lu!tion% !re credited directly to euity !nd thus do not &ive rise to inco3e =he f!ct th!t the A"B h!s 3ore or less !rbitr!rily dr!wn the line between

unre!lied incre!ses in !ssets th!t !re reco&nied throu&h profit !nd loss !nd unre!lied !sset incre!ses e;cluded fro3 inco3e (A"B% E**1!% p ) reve!ls th!t

the inco3e definition in the A"B $r!3ewor> is too bro!d to li3it (!rbitr!ry) choices in the develop3ent of !ccountin& policies% either by the Bo!rd or by

prep!rers

=he s!3e c!n be s!id !bout the &ener!l reco&nition criteri! in the A"B $r!3ewor>% the prob!ble inflow of future econo3ic benefits !ssoci!ted with !n ite3 !nd

its reli!ble 3e!sure3ent ($@H0) =he A"B $r!3ewor> does not provide !ny thresh-old th!t 3ust be 3et for the inflow of econo3ic benefits to be re&!rded !s

prob!ble n view of the v!&ueness of the prob!bility criterion% it is not surprisin& th!t the A"B h!s set different prob!bility reuire3ents for different

!ccountin& issues% !s evidenced below for the reco&nition of revenue fro3 the s!le of &oods !nd construction contr!cts As re&!rds the reli!ble 3e!sure3ent

criterion% the A"B (E**1!) h!s observed th!t the C!ccountin& st!nd!rds h!ve different (inconsistentV) hurdles for sufficiently reli!ble 3e!sure3ent !nd different(inconsistentV) tre!t3ents for insufficiently reli!ble 3e!sure3ent7 (p ) t follows th!t the &ener!l reco&nition criteri! in the A"B $r!3ewor> do not provide !

suit!ble b!sis for the consistent deduction of !ccountin& policies in the !bsence of !n $R"

nste!d of providin& &uid!nce on how to find !n !ppropri!te 3e!sure3ent !ttribute in ! specific situ!tion% the A"B $r!3ewor> only lists sever!l 3e!sure3ent

b!ses th!t !re used in the !ccountin& pr!ctice ($@**) (A"B% E**1d% p E*) Due to the Cl!c> of !n !&reed% coherent 3e!sure3ent theory7% inconsistencies in the

3e!sure3ent of fin!nci!l st!te3ent ele3ents e;ist in sever!l $R"% such !s in A" 0% which is dee3ed to Creflect 3ore or less !rbitr!ry 3i;ed 3e!sure3ent

co3pro3ises spendin& resolution of conflictin& views on !ppropri!te 3e!sure3ent b!ses7 (A"B%E**1d% p E*)=his su&&ests th!t the reuired reference to the

$r!3ewor>7s 3e!sure3ent concepts in the !bsence of !n $R" de!lin& with ! specific issue or with rel!ted issues does not !deu!tely &uide 3!n!&ers7

 5ud&3ent in the choice of ! 3e!sure3ent !ttribute

STANDARDS AND INTERPRETATIONS DEALING WITH SIMILAR AND RELATED ISSUES"ince the A"B h!s not !pplied the A"B $r!3ewor>7s &ener!l reco&nition !nd 3e!sure3ent principles consistently to si3il!r issues% so3e $R" !re inconsistent

$or e;!3ple% revenue fro3 the s!le of &oods sh!ll not be reco&nied until the seller h!s tr!nsferred the si&nific!nt ris>s !nd rew!rds of ownership to the buyer

(A"H+ (!)) =his typic!lly occurs with the tr!nsfer of le&!l title or the p!ssin& of possession to the buyer (A" H1) f the Cris>s !nd rew!rds criterion7 were

!lso to be !pplied to construction contr!cts% revenue would &ener!lly h!ve to be reco&nied when construction is co3plete t h!s been !r&ued th!t in the c!se

of lon&-ter3 construction contr!cts% the Cco3pleted contr!ct 3ethod7 would not !ppropri!tely reflect the enterprise7s perfor3!nce durin& the periods of

construction (P!ton !nd 6ittleton% +*4 F1% p 1* $R,% E**F% p +) =herefore% the A"B 3!>es !n e;ception fro3 the ris>s !nd rew!rds criterion in the c!seof construction contr!cts f the outco3e of the contr!ct is reli!bly 3e!sur!ble A" EE reuires revenue fro3 construction contr!cts to be reco&nied

!ccordin& to the st!&e of co3pletion of contr!ct !ctivity !t e!ch b!l!nce sheet d!te% even if the enterprise h!s not yet tr!nsferred le&!l title or possession to the

custo3er

THE IASBS EFFORTS TOWARDS THE ELIMINATION OF INCONSISTENCIES.!vin& reco&nied th!t the ob5ectives% concepts !nd principles in the e;istin& A"B $r!3ewor> !re p!rtly !3bi&uous !nd intern!lly inconsistent% the A"B !nd the

$A"B be&!n ! 5oint pro5ect on the revision !nd conver&ence of their conceptu!l fr!3ewor>s in E**+ =he ob5ective of the pro5ect is to develop ! co33on

conceptu!l fr!3ewor> th!t is Csound% co3prehensive% !nd intern!lly consistent7 !nd thus constitutes !n !deu!te found!tion for the develop3ent of consistent%

principles-b!sed !ccountin& st!nd!rds (Bullen !nd ,roo>% E**1% p A"B% E**H% P+) =his pro5ect is e;pected to l!st for 3!ny ye!rs

One 3e!sure th!t the Bo!rds pl!n to undert!>e in respect of the e;istence of conflictin& ob5ectives !nd !ccountin& theories is to pl!ce &re!ter e3ph!sis on pro-

vidin& infor3!tion on !n enterprise7s fin!nci!l position !nd thus the !ssets/li!bilities view (Dichev E**H% p +1H @hittin&ton% E**H% pp +1*) Accordin& to

ch!pter of the :;posure Dr!ft of !n i3proved ,onceptu!l $r!3ewor> for $in!nci!l Reportin& the ob5ective of fin!nci!l st!te3ents sh!ll Conly7 be to Cprovide

infor3!tion !bout the li!bilities !nd euity)7% th!t is% its fin!nci!l position (A"B% E**H% OBF) =he dr!ft conceptu!l fr!3ewor> further st!tes th!t infor3!tion

!bout !n entity7s fin!nci!l perfor3!nce is !lso essenti!l (A"B% E**H% OBH% OBEE) .owever% since the ter3 Cperfor3!nce7 is pl!nned to be defined in ter3s of

ch!n&es in the entity7s fin!nci!l position% it !ppe!rs !s if the depiction of !n enterprise7s perfor3!nce in the ori&in!l sense (e&% !ccordin& to P!ton !nd 6ittleton%

+*4 F1) sh!ll no lon&er be ! distinct ob5ective of $R" fin!nci!l st!te3ents% fro3 which conseuenti!l reco&nition !nd 3e!sure3ent criteri! (such !s the

st!&e-of-co3pletion 3ethod in A" ) !re developed (si3il!rly Bonh!3 et !l% E**% p +)

Ap!rt fro3 this% the Bo!rds intend to repl!ce the ter3 Creli!bility7 with the ter3 Cf!ithful represent!tion7 in order to cl!rify its 3e!nin& (A"B% E**H% U,F%

B,EEB,E1)@hile this repl!ce3ent is only supposed to be ! cl!rific!tion% so3e !r&ue th!t the ch!n&e in the wordin& !lso brin&s !bout ! ch!n&e in the

3e!nin& (@hittin&ton% E**H% p +FI see !lso @!lton% E**F% p 0+* 6enn!rd% E**I% p!r!s 0EE0E0) =he currently reuired tr!de-off between relev!nce !nd

reli!bility sh!ll be substituted by ! flow process (A"B% E**1b% p!r!s 0+)% in which the st!nd!rd setter or% in the !bsence of !n $R"% 3!n!&ers should first

identify the econo3ic pheno3en! th!t !re relev!nt in 3!>in& econo3ic decisions !nd then choose the reco&nition !nd 3e!sure3ent 3ethods the !pplic!tion

of which provides the 3ost relev!nt infor3!tion (A"B% E**1c% p!r!s EE% E**H% U,E) !nd then !ssess whether the chosen !ccountin& 3ethod is ! sufficiently

f!ithful represent!tion of the respective econo3ic pheno3en! (A"B% E**H% U,0) App!rently% the dr!ft conceptu!l fr!3ewor> priorities Crelev!nce7 over

Cf!ithful represent!tion7 (@hittin&ton% E**H% p +F #ebh!rdt !nd De!n% E**H% p EEE) =h!t is bec!use one will h!ve to choose the 3ost relev!nt !ccountin&

3ethod if the represent!tion of the ite3 is sufficiently f!ithful% even if there !re other (less) relev!nt 3ethods th!t would 3ore f!ithfully represent the ite3

n order to re3ove e;istin& 3e!sure3ent inconsistencies the A"B is currently undert!>in& ! pro5ect on 3e!sure3ent ob5ectives n line with the ":,7s notion

th!t the !doption of principles-b!sed st!nd!rds will prob!bly le!d to !n incre!sin& e3ploy3ent of f!ir v!lue (":,% E**0% i) the A"B tent!tively concluded

th!t f!ir v!lue is the 3ost desir!ble 3e!sure3ent b!sis on initi!l reco&nition (A"B% E**1d% p 0) n theory% the !doption of f!ir v!lue !s ! sin&le 3e!sure3ent

!ttribute would le!d to consistency since Cthe f!ir v!lue of !ny p!rticul!r !sset or li!bility is the s!3e for every entity7 (B!rth% E**F% p EI1 see !lso B!rlev !nd

.!dd!d% E**I% p 1*E B!rth% E**I% p Bro3wich% E**I% p 1I) .owever% in pr!ctice the use of v!lu!tion 3ethods in the !bsence of 3!r>et prices which

reuire 3!n!&ers to 3!>e esti3!tes renders it 3ost unli>ely th!t co3p!nies c!lcul!te the s!3e v!lues in identic!l circu3st!nces =his i3plies th!t intern!l

consistency of !ccountin& st!nd!rds% for e;!3ple !s re&!rds 3e!sure3ent% does not !uto3!tic!lly &u!r!ntee ! consistent !pplic!tion of the respective

st!nd!rds 'ot!bly% Benston et !l (E**F) !r&ue th!t st!nd!rd setters need to provide Cvery det!iled rules for c!lcul!tin&7 f!ir v!lues (pI0) =he April E**

ch!n&es to "$A" 1I $!ir 9!lue Me!sure3ents confir3 this t is% however% not in line with the current trend in st!nd!rd settin& to 3ove fro3 rules-b!sed to

3ore principles-b!sed !ccountin& st!nd!rds on the one h!nd On the other h!nd it !lso needs to be considered th!t providin& rules does not !uto3!tic!lly

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H

cre!te consistency $or e;!3ple% A" 0 provides e;tensive &uid!nce on how to c!lcul!te f!ir v!lues in the !bsence of 3!r>et prices 'evertheless% ! consistent

v!lu!tion of fin!nci!l instru3ents is currently not !chieved ($in!nci!l "t!bility $oru3% E**H% pp EH et se)

CLARIFICATION OF THE MEANING OF RULES AND PRINCIPLES=he lin> is now 3!de between the consistency issue !nd the rules-versus-principles deb!te in the !ccountin& liter!ture =he definitions !nd distinctive

ch!r!cteristics of rules !nd principles !re identified b!sed on the le&!l !nd !ccountin& liter!tures t is concluded th!t the re3ov!l of 3!ny deficiencies currently

perceived in rel!tion to the rules under 8" #AAP !nd $R" does not reuire ! co3plete eli3in!tion of rules% but could !lso be !chieved by ! re3ov!l of present

inconsistencies Moreover it is de3onstr!ted th!t ! consistent !pplic!tion !ccountin& st!nd!rds does not only presuppose intern!l consistency of the !ccountin&

st!nd!rds% but !lso the pro-vision of rules in the for3 of specific reco&nition !nd 3e!sure3ent reuire3ents

THE DEFINITION OF RULES AND PRINCIPLES IN THE ACCOUNTING LITERATURE=he !ccountin& liter!ture distin&uishes between rules !nd principles by reference to their specificity !nd the de&ree of 5ud&3ent th!t is reuired in their

!pplic!tion4 @hile the ":,% the nstitute o ,h!rtered Account!nts of "cotl!nd (,A") !nd 3ost rese!rchers ch!r!cterie rule !s bein& hi&hly det!iled !ndun!3bi&uously prescribin& specific !ccountin& 3ethods(":,% E**0% D ?ivi et !l% E**+% p ,A"% E**Fb% pp H% * see !lso M!son !nd #ibbins% % p EE)%

principles !re typic!lly described !s bro!d &uidelines th!t% inste!d of providin& det!iled i3ple3ent!tion &uid!nce% reuire prep!rers to e;ercise 5ud&3ent in

!pplyin& the principles to specific tr!ns!ctions !nd events (=weedie%E**E% E**1% pp 00+% E**I% p I DiPi!!% Jr% E**H% p I =s!>u3is et !l% E**% pp FIsee

!lso ":,% E**0% p!r! , Ps!ros% E**I% p 1EH)

=weedie (E**E% E**I% pI) points out th!t in !n !ccountin& syste3 th!t is b!sed on principles only% 3!ny individu!l tr!ns!ctions !nd events !re not e;plicitly

de!lt within !ny st!nd!rd n such c!ses% 3!n!&ers !re supposed to select !nd !pply !ppropri!te !ccountin& policies by e;ercisin& profession!l 5ud&3ent Dic>ey

!nd "c!nlon (E**F) further note th!t in ! principles-b!sed syste3 enforcin& !&encies !re only !llowed to second-&uess 3!n!&ers7 profession!l 5ud&3ent if the

selected !ccountin& policies !re not in confor3ity with the hi&h-level principles or if the 5ud&3ent w!s not 3!de Cin &ood f!ith7 (pp FI see !lso '&% E**+% p

E* =weedie% E**I% p H Bonh!3 et !l% E**% p I0) =hey conclude th!t Cthe principles-b!sed !ppro!ch theoretic!lly per3its public co3p!nies to h!ve differin&

!ccountin& 5ud&3ents within the fr!3ewor> of these bro!d principles7 (Dic>ey !nd "c!nlon% E**F% p 0)

@e hold th!t 3!ny of the proble3s rel!ted to rules under 8" #AAP !nd $R"% such !s scope e;ceptions !nd e;cessive i3ple3ent!tion &uid!nce% do not reuire

the eli3in!tion of !ll specific &uid!nce !s reuested by so3e in the !ccountin& liter!ture @e !r&ue th!t they 3!y !lso be resolved by eli3in!tin& the

inconsistencies within the respective !ccountin& syste3s $or e;!3ple% if A" 0 would reuire 3e!sure3ent of !ll fin!nci!l instru3ents by reference to !

consistent 3e!sure3ent b!sis the st!nd!rd would (!uto3!tic!lly) cont!in 3uch less specific &uid!nce

IMPACT OF THE LEVEL OF DETAIL OF ACCOUNTING STANDARDS ON CONSISTENCY IN THEIR APPLICATIONAs shown !bove% principles-b!sed st!nd!rds 3!y% even if intern!lly consistent% be !pplied differently to identic!l issues by different co3p!nies !nd thus do not

ensure consistency in the !pplic!tion of the !ccountin& st!nd!rds =h!t is bec!use principles !lone do not provide ! sufficient structure to li3it 3!n!&ers7

 5ud&3ents in the !pplic!tion of the principles to specific tr!ns!ctions !nd events =his 3e!ns th!t if consistency !s re&!rds the !pplic!tion of !ccountin&

st!nd!rds is strived for% rules% which !re consistently developed on the b!sis of the hi&h-level principles% need to be provided

$oe e;position consider4 A revenue reco&nition principle could be th!t revenue should be reco&nied when the inflow of econo3ic benefits is prob!ble "ince it

depends on 3!n!&ers7 5ud&3ent when the inflow of econo3ic benefits is re&!rded !s prob!ble% it 3!y h!ppen th!t in the c!se of !n identic!l s!les contr!ct one

co3p!ny reco&nies revenue !t contr!ct conclusion while !nother co3p!ny reco&nies revenue with the receipt of c!sh f consistency in the !pplic!tion of

!ccountin& st!nd!rds sh!ll be ensured consistent rules for different types of revenue-&ener!tin& tr!ns!ctions need to be provided A rule for the s!le of &oods

could be th!t revenue sh!ll be reco&nied when the &ood is h!nded over to the custo3er !nd no si&nific!nt !ddition!l obli&!tions re3!in to be fulfilled (3ore

specific consistentQ &uid!nce for !ddition!l obli&!tions% such !s w!rr!nties% 3!y be provided) "ince the ris> th!t the sold product does not confor3 to the

contr!ctu!lly !&reed specific!tions is hi&her in construction contr!cts th!n in s!les contr!cts ! consistent revenue reco&nition rule for construction contr!cts

would reuire the custo3er7s !ccept!nce of the finished product for revenue to be reco&nied

2 DISCUSSION

=he followin& loosens our previous !ssu3ption th!t ! consistent !pplic!tion of !ccountin& st!nd!rds by !ll co3p!nies is reuired =he !dv!nt!&es !nddis!dv!nt!&es of principles-b!sed !nd rules-b!sed !ccountin& st!nd!rds !re e;!3ined% le!din& to the conclusion th!t% for re!sons of co3p!r!bility%

enforce!bility !nd ob5ectivity of fin!nci!l reportin& infor3!tion% it is i3port!nt to h!ve specific (intern!lly consistent) !ccountin& reuire3ents th!t li3it

3!n!&ers7 5ud&3ents in the !pplic!tion of !ccountin& st!nd!rds to ide!lly only one possible !ccountin& 3ethod t is !c>nowled&ed% however% th!t this 3!y% in

so3e situ!tions% le!d to !n i3p!ired relev!nce of fin!nci!l reportin& infor3!tion

RULES-BASED STANDARDS INCREASE THE COMPARABILITY OF FINANCIAL REPORTING INFORMATIONR! (IE) !nd others consider rules to le!d C3ore e!sily to unifor3 !nd predict!ble !pplic!tion7 !nd thus to cre!te consistency !nd co3p!r!bility (p H+

McB!rnet !nd @hel!n% % pp H+H ,A"% E**Fb% pp *) By contr!st% principles% !ccordin& to Dic>ey !nd "c!nlon (E**F)% 3!y be !pplied differently to

identic!l c!ses !cross co3p!nies due to differences in the use of 5ud&3ent thereby le!din& to ! l!c> of co3p!r!bility !nd consistency in the !pplic!tion of

!ccountin& st!nd!rds (p 0)

ts recourse by 3!ny over sever!l dec!des su&&ests th!t co3p!r!bility is ! desir!ble ch!r!cteristic of fin!nci!l reportin&4 :speci!lly in the 8" !ccountin&

liter!ture 3!ny !uthors% such !s "chipper (E**0)% e3ph!sie the need for co3p!r!bility of fin!nci!l st!te3ents (pp FE0) n theF*s discussion by the C#olden

A&e7 theorists% includin& ,h!3bers (FF) !nd Moonit (F)% co3p!r!bility w!s ! 3!5or postul!te underpinnin& their ide!s $urther3ore% it is de3!nded !nd

3uch v!lued by investors (,hoi !nd Mc,!rthy% E**0% p I% referrin& to ! letter issued by the Associ!tion for nvest3ent M!n!&e3ent !nd Rese!rch in E***)% it is

one of the very re!sons for the e;istence of !ccountin& st!nd!rds (Previts !nd Merino% H% pp EEH0+ "chipper% E**0% p FE) !nd it underpins the :87s

reuire3ent for listed co3p!nies to !pply unifor3 !ccountin& st!nd!rds in the for3 of $R" in their consolid!ted !ccounts (Article A" Re&ul!tion).owever% cross-fir3 co3p!r!bility of fin!nci!l st!te3ents% i3ply th!t ! co3p!ny showin& hi&h inco3e !t the end of the !ccountin& period is econo3ic!lly better

off th!n other co3p!nies with ! lower inco3e nu3ber% is not !chiev!ble% not even by 3e!ns of unifor3 !ccountin& st!nd!rds One re!son noted by Ale;!nder

!nd Jer3!>owic (E**F) is th!t the !pplic!tion of specific rules 3!y reuire econo3ic!lly different situ!tions to be !ccounted for identic!lly !nd thus cre!te !

pseudo-co3p!r!bility (Ale;!nder !nd Jer3!>owic% E**F% p 1*)

PRINCIPLES-BASED ACCOUNTING STANDARDS INCREASE THE RELEVANCE OF FINANCIAL REPORTING INFORMATIONAp!rt fro3 the cre!tion of ! Cpseudo-co3p!r!bility7 in so3e c!ses% rules !re criticied for f!ilin& to c!pture the p!rticul!rities of individu!l c!ses (Br!tton% E**0%

p*0I) !nd for !llowin& prep!rers to Cstructure tr!ns!ctions round the prescriptions% thereby circu3ventin& the intent !nd spirit of the st!nd!rds7

(,unnin&h!3%E**I% p ) Principles% by contr!st% !re re&!rded !s bein& h!rdly susceptible to !n ev!sion of their intended purpose (Brosh>o !nd 6i% E**F% p1)

!nd% due to their fle;ibility !nd the reuired use of profession!l 5ud&3ent% !s h!vin& the c!p!city to &ive consider!tion to the p!rticul!rities of individu!l c!ses

(Br!tton% E**0% p *0I ,unnin&h!3% E**I% p )

Another re!son why 3!ny% for e;!3ple% Ale;!nder !nd Jer3!>owic (E**F)% !r&ue th!t principles provide 3ore relev!nt infor3!tion th!n rules is th!t

3!n!&ers7 best >now the econo3ic re!lity !nd how to !ccount for it (p 1*) Others% for e;!3ple% B!&noli !nd @!tts(E**1)% further3ore hi&hli&ht the positive

influence of the e;istence of i3plicit !ccountin& choices on the relev!nce of fin!nci!l reportin& infor3!tion by providin& evidence th!t 3!n!&ers7 !ccountin&

policy choices !llow the 3!r>et to infer 3!n!&ers7 priv!te infor3!tion !bout the fir37s econo3ic situ!tion (Csi&n!llin& effect7) (pIH)

.owever% downside of the fle;ibility of principles is% !ccordin& to Beechy (E**1)% th!t 3!n!&ers 3!y not !lw!ys choose the 3ost relev!nt !ccountin& 3ethodsince 3!n!&ers !re !lw!ys bi!sedTeven if they do not h!ve fr!udulent intentions (p) #uenther (E**1) !ttributes this% !3on&st other thin&s% to the pressure

to present &ood results in the short ter3% especi!lly when the person!l inco3e is bound to the !chieved results (pp F% E0) Rentfro !nd .oo>s (E**+)

!ddition!lly re3!r> th!t the recent corpor!te sc!nd!ls% such !s the c!se of :nron% indic!te !necdot!lly th!t 3!n!&ers do not !lw!ys !pply !ccountin& st!nd!rds

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in &ood f!ith (p H for the possibility of !buse of i3precise !ccountin& st!nd!rds see ,l!r>e !nd De!n% E% 0% E**I) Principles-b!sed !ccountin& st!nd!rds

!re hence criticied for providin& incre!sed potenti!l for e!rnin&s 3!n!&e3ent (Beechy% E**1% pp E** Benston et !l% E**F% p I0)

n confor3ity with this% :wert !nd @!&enhofer (E**1) find th!t ti&hter !ccountin& st!nd!rds reduce e!rnin&s 3!n!&e3ent .owever% they !lso find evidence

th!t ti&hter !ccountin& st!nd!rds incre!se re!l e!rnin&s 3!n!&e3ent% th!t is% ! ch!n&e in the structure of tr!ns!ctions or events in order to !void the

conseuences specified by !n !ccountin& st!nd!rd

6!u; !nd 6eu (E**% pp H0*-) provide !n e;!3ple th!t will illustr!tes the !bove st!ted conflict between the relev!nce of 3!n!&ers7 fle;ibility !nd the ris> of

e!rnin&s 3!n!&e3ent4 "ince the 3e!sure3ent of f!ir v!lue by reference to 3!r>et prices isTif cont!&ion effects e;istTnot !ppropri!te% 3!n!&ers 3ust

devi!te fro3 3!r>et prices !nd deter3ine f!ir v!lue by 3e!ns of v!lu!tion 3odels in order to provide relev!nt infor3!tion .owever% it is often not cle!r under

which circu3-st!nces 3!r>et prices !re 3isle!din& 6!u; !nd 6eu conclude th!t C3!n!&ers h!ve !n infor3!tion !dv!nt!&e over the &!te>eeper (e&% !uditors

or the ":,) !nd% !s ! result% it is difficult to write $9A st!nd!rds th!t provide the fle;ibility when it is needed !nd constr!in 3!n!&ers7 beh!viour when it is not

needed7 (p H0)RULES-BASED STANDARDS INCREASE THE ENFORCEABILITY OF FINANCIAL REPORTING STANDARDS"ince in the c!se of rules !ctors >now without !3bi&uity wh!t to do in order to obey rules% the !dv!nt!&e is seen to be in their contribution to cert!inty !nd

enforce!bility (,A"% E**Fb% pp *) On the other h!nd principles% due to their v!&ueness% !re re&!rded to be difficult to enforce !nd thus to cre!te

uncert!inty (,unnin&h!3% E**I% p )

As st!ted !bove% in the c!se of principles-b!sed st!nd!rds enforcin& !&encies h!ve to !ccept th!t there will be circu3st!nces where 3!n!&ers of co3p!nies

!ccount for identic!l tr!ns!ctions differently ,onseuently% the !&encies sh!ll only be !llowed to second &uess 3!n!&ers7 profession!l 5ud&3ents if the selected

!ccountin& policies !re not in confor3ity with the hi&h-level principles or if the 5ud&3ents were not 3!de C in &ood f!ith7 But% since principles-b!sed st!nd!rds

!llow differin& interpret!tions of the bro!d principles often it will beTespeci!lly in the !bsence of specific &uid!nceTdifficult to 5ud&e whether !n !dopted

!ccountin& policy confor3s to the principles !nd whether the 5ud&3ent w!s 3!de in &ood f!ith (?ivi et !l% E**+% p E)"o3e therefore doubt th!t re&ul!tors in

liti&ious environ3ents% such !s the 8"% will be willin& to !ccept different !pplic!tions of the s!3e principles (=!ub% E**+)Dic>ey !nd "c!nlon (E**F) observe

th!t in this c!se% prep!rers would be e;posed to ! hi&her ris> of liti&!tion bec!use enforcin& !&encies 3!y !lle&e viol!tion even if the reuired profession!l

 5ud&3ent w!s e;erted in &ood f!ith (p F)

RULES-BASED STANDARDS INCREASE THE ENFORCEABILITY OF FINANCIAL REPORTING STANDARDSn the !ccountin& liter!ture the uest for consistency !s re&!rds the !pplic!tion of !ccountin& principles is 3ostly pre3ised on the desire to !chieve output

co3p!r!bility in the for3 of fin!nci!l st!te3ents (see% e&% "chipper% E**0% p FE) "o3e believe th!t there is !nother eu!lly i3port!nt re!son Ap!rt fro3providin& decision-useful infor3!tion% !ccountin& is !lso freuently used for stew!rdship/contr!ctin& purposes% for inst!nce its use in e3ploy3ent contr!cts !nd

debt coven!nts% in order to c!lcul!te !nnu!l bonuses or to li3it future debt levels (@!tts !nd Si33er3!n% HF% p F)=hose other functionsTstew!rdship

!nd !ccount!bilityTh!ve ! lon& history (:dw!rds et !l% E**) #uenther (E**1)% for e;!3ple% points out those !ccountin&-b!sed contr!cts only efficiently

b!l!nce the interests of the contr!ctin& p!rties if there is !&ree3ent on how the relev!nt !ccountin& nu3bers !re c!lcul!ted (pp 1H) As st!ted !bove%

principles-b!sed !ccountin& st!nd!rds so3e-ti3es per3it 3!n!&ers to choose between sever!l different !ccountin& 3ethods @ith re&!rd to debt coven!nts%

principles-b!sed st!nd!rds thus en!ble 3!n!&ers to circu3vent coven!nt restrictions by (volunt!rily) ch!n&in& to ! 3ore f!vor!ble !ccountin& 3ethod (.e!ly

!nd P!lepu% *% p I% referrin& to !ccountin& choice sunder 8" #AAP) ndeed% 3!ny rese!rches% for e;!3ple% "3ith !nd @!rner (I)% h!ve provided

sound e3piric!l evidence th!t 3!n!&ers 3!>e use of this fle;ibility in order to !void costly viol!tions of the contr!ct

@!tts !nd Si33er3!n (*) !r&ued th!t fle;ibility in the choice of !ccountin& policies incre!ses costs !nd thus decre!ses contr!ct efficiency (p 01) =h!t is

bec!use lenders either price-protect the3selves !&!inst 3!n!&ers7 Ccre!tive !ccountin&7 or they restrict the nu3ber of !v!il!ble !ccountin& 3ethods by usin&

fi;ed #AAP provisions% which !re costly to ne&oti!te !nd 3onitor for the lender !nd costly for the borrower bec!use he needs to prep!re !n e;tr! set of fin!nci!l

st!te3ents for contr!ctin& purposes Accordin& to 6eftwich (H0) !nother downside of v!&ue principles fro3 ! contr!ctin& perspective of fin!nci!l reportin& is

th!t they cre!te uncert!inty !bout the ter3s of the contr!ct !nd incre!se the ris> of liti&!tion between the contr!ctin& p!rties (pp EH)

$ro3 ! contr!ctin& perspective of fin!nci!l reportin&% it is essenti!l to restrict 3!n!&ers7 5ud&3ent in the !bsence of cle!r &uid!nce to only one possible

!ccountin& 3ethod Principles-b!sed !ccountin& st!nd!rds h!ve been shown not to ensure this since they often per3it 3!n!&ers to choose between different!ccountin& 3ethods A purported !dv!nt!&e of rules-b!sed !ccountin& st!nd!rds (not necess!rily cont!inin& bri&ht-line tests th!t !llow 3!n!&ers to circu3vent

the rules7 purpose)is th!t they provide cle!r &uid!nce !nd% throu&h this% li3it 3!n!&ers7 !bility to influence the relev!nt !ccountin& nu3bers Anyhow% if the

rules !re not intern!lly consistent% 3!n!&ers 3!y% in the !bsence of concrete &uid!nce% !rbitr!rily choose between sever!l even opposin& !ccountin& policies

$ro3 ! contr!ctin& perspective% specific !ccountin& st!nd!rds !re therefore only effective if they !re intern!lly consistent

t beco3es obvious th!t when discussin&