Método de evaluación de la incertidumbre en las medidas

Taking for granted that the primary product of accrual accounting is net income to be used as a better measure of performance (Graham et al., 2005), one of the main goals of this kind of financial reporting system is to provide useful information about earnings and its components.

However, the usefulness of earnings depends on its quality that, in turn, depends on the quality of its components65. Given that the realized cash flows sub- component of earning is the most reliable element of the financial reporting activity, it goes that the usefulness and the quality of earnings depends on the quality of the accrual sub-component.

As mentioned in the first chapter, the quality of accruals can be influenced by both firm’s economic fundamentals and the managerial discretion embedded in their recognition66. Nevertheless, besides these exogenous factors, another primary issue concerns the ground rules of the accrual accounting system. Specifically, the endogenous factors that affect the quality of accruals and, in turn, the quality of earnings are represented by the two main processes which guide the

65 _{See Chapter I for the accrual process formalization that lead to earnings and its component.} 66 _{See Par. 3, Chapter I.}

production of accounting numbers under the accrual reporting system: the revenue recognition and the matching process67.

Since the link between expenses and revenues is one of the basic concepts underpinning accrual accounting, the matching process has been defined as the central purpose of accounting, becoming the basic concept in the determination of periodic income (Littleton, 1953). However, it is also true and has to be considered that various issues have been raised about the usefulness of matching. In connection with this, the most often raised issue, around which all kind of debates can probably be proposed, refers to the understanding of what matching means, depending on who is discussing about it. Specifically, it seems that the only reason why matching has been interpreted in so many different ways is that, in assessing the usefulness of matching processes, it has been modified to provide the accounting information required at a given period of time.

Starting from 1940, Paton and Littleton stress the periodic profit and loss calculation from the perspective of stewardship assessment, and adopt the historical cost accounting relying on the assumption according to which the historical cost is a more verifiable and objective evidence. As stated by Paton and Littleton (1940) ‘the primary purpose of accounting, […], is the measurement of periodic income by means of a systematic process of matching costs and

revenues’68. According to the authors, the usefulness of matching principle can be

viewed as a necessity for periodic profit and loss calculation in order to obtain a

67_{See Par. 3, Chapter II.}

68 _{In their matching process, revenue is recognized under the realization principle that requires}

converting products into cash or other valid assets, while the expense recognition involves three steps: (i) ascertaining and recoding costs as incurred; (ii) tracing and reclassifying costs in terms of operating activity; (iii) assigning costs to revenues.

benchmark to assess the efficiency of management. In this sense, the difference between business effort (expenses) and accomplishments (revenue) reflects management efficiency, and this information is critical for investors to assess manager’s stewardship.

Later, in a period of fluctuating prices, Edwards and Bell (1961) proposed a refined process of matching expenses with revenues. Specifically, in order to overcome the doubts about the adequacy of the profit and loss calculation structure based on the traditional historical cost accounting during a period of market fluctuation, they proposed to adopt current value accounting in expenses calculation while maintaining the traditional profit calculation framework. Moreover, according to Edwards and Bell (1961), for appropriate management decision-making during a period of price fluctuations, productive activity (that yield a profit by combining or transforming factors of production into products) must be separated from holding activity (that yield a gain because the prices of assets rise), and there must be a clear separation between the profit earned from each of those activities. The way of thinking behind Edwards and Bell (1961), advocating current value accounting, is to achieve accurate profit calculation that takes into account market prices fluctuations. In connection with the business profit calculation, current operating profit is calculated by matching current values (revenues) and current costs (expenses) generated by the productive activity. For holding activity, instead, realizable cost saving is calculated by comparing current costs of the period with those of the previous periods. Current value, on the other hand, is nothing but sales from (realized) revenues. Therefore, matching expenses

with revenues in Edwards and Bell (1961) requires not just a causal relationship between expenses and revenues, but matching at the same price level as well. Relaying on the thought of Edwards and Bell (1961), The American Accounting Association (AAA, 1965) proposes the separation of current operating profit and holding gain, and states that the role of accounting is to convey private information that allow the understanding of the various operations of a company. In addition, such information should be useful for managers, owners and other stakeholders during their decision making process and for the judgment about the firms’ performance.

Highlighting the importance of measuring the efficiency of the various operations carried out by a firm, Bedford (1965) further divided the two categories of production and holding activities put forward by Edwards and Bell (1961), and developed a matching process for each of the company’s operations. In this sense, Bedford (1965) assumes earnings to be a tool to evaluate the administrative process. Therefore, he divides the business process into several areas: (i) financing from investors and creditors, (ii) acquisition operations for employees, raw materials, and other business resources, (iii) holding business resources, (iv) production operations, (v) sales operations, and (vi) distribution of income to shareholders. Among these, areas form (ii) to (v) are defined as income-generating operations by which operational efficiency should be appraised. Consequently, Bedford (1965) modifies the matching process to enable the assessment of the efficiency of each income-generating operation. Moreover, as Edwards and Bell (1961), Bedford (1965) advocates the separate recording of holding gains and losses.

A completely different way of thinking was, then, introduced by Storey (1978). Specifically, he criticizes the traditional matching process, pointing out that an inadequate one bears a heavy responsibility for inadequate profit calculation in modern accounting. He also highlights the limitations within the realization concept and other traditional accounting principles. Indeed, Storey (1978) states that following the traditional matching process:

 the information provided are backward-looking, and cannot be used in a future-oriented decision making process;

 under the realization basis, even though the time revenues recognition is arbitrary, it has a major impact on income decisions;

 assets values are not reported in the balance sheet;  expenses calculation also contains such arbitrariness.

Relaying on these assumptions, Storey (1978) suggested that the revenues recognition process should be based on the reassessment of net realizable values, in order to overcome such arbitrariness and reach the properly reporting of assets value in the balance sheet. This means that revenues recognition is based on the progress in the manufacturing process, while expenses are allocated to a given period without considering the recognition of revenues. Following the Storey (1978) way of thinking about the implementation of matching process, revenues are viewed as being created by expenses generated during the reference period, so the result is that revenues should be matched with costs, and all expenses are seen as being costs of the period: this means that revenues and expenses are matched on the basis of a correlation arising during the same period.

2.

The matching process through the revenue/expense model and