Implications Of The Crisis Of Objectivity In Accounting Measurement On The Development Of Finance Theory

Abstract

Studies in accounting measurement indicate the absence of empirical relational structures that should form the basis for accounting measurement. This suggests the lack of objectivity of accounting information. Landmarks in the development of finance theory indicate the use of accounting measurement information as a basis for their development. This indicates that subjective accounting information is incorporated in finance theory. Consequently, this questions the status of finance as a universal science for all investigators, and its ability to construct precise models of finance experiences. This paper uses the principles of representational measurement to highlight the implications of subjective accounting information on the development of finance principles and concepts. It shows that finance, is not a universal science and that precise models of finance experiences are currently not constructible.

The Role Of Measurement Theory In Supporting The Objectives Of The Financial Statements

“…However, accounting research (e.g. Chambers, 1997;Gilman, 1939;Ijiri, 1975Ijiri, , 1967Littleton, 1953;Paton and Littleton, 1940;Staubus, 1985;Staubus, 2004;Sterling, 1966, Musvoto, 2011, has established the consensus that the accounting discipline has not succeeded in creating a theory of accounting measurement from the observation of accounting practices of measurement. However, every process of measurement must have a theory of measurement (Narens, 2002).…”

The Accounting Concept Of Measurement And The Thin Line Between Representational Measurement Theory And The Classical Theory Of Measurement

“…For example, the IASB (2009) recognizes as measurements only the assignment of monetary units to economic events that meet the definition of an element of the financial statements. With regard to the assignment of monetary units to economic events, Musvoto (2011) notes that the structure of monetary units can be represented on the real line implying that monetary units represent a possible underlying measurable magnitude. But, the author also argues that the underlying structure "value" is not empirically testable.…”

“…According to Michell and Ernst (1996:236) there are two sides to measurement theory: one side (emphasized in the modern era) at the interface with experimental science, the other side (emphasized in the classical) at the interface with quantitative theory. However, some accounting studies (e.g., Ijiri, 1967Ijiri, , 1975Orbach, 1978;Willet, 1987Willet, , 1988Walker andJones, 2003 &Musvoto, 2011) have concentrated on the applications of modern measurement theory to accounting neglecting the already existing principles of the classical theory of measurement in accounting. It may be argued that this has somewhat caused the accounting concept of measurement to be misunderstood.…”

“…In this case, using the classical theory of measurement the hypothesis that value or cost has a structure that matches monetary units is not intended to be empirically testable. Although, Willet (1987Willet ( , 1988Willet ( , 1992, Ryan et al (2002) and Musvoto (2008Musvoto ( , 2011) draw attention to the lack of empirically testability of the relationship between value and monetary units the representing structure, they mistakenly attributes this to the lack of foundations of measurement in the accounting discipline. Their arguments fail to recognize that there are two sides to measurement © 2011 The Clute Institute theory, as Michell and Ernst (1996: 236) states: "one side (emphasized in the modern era) at the interface with experimental science, the other side (emphasized in the classical) at the interface with quantitative theory".…”

“…© 2011 The Clute Institute Research in accounting measurement took the viewpoint that the modern principles of measurement are nothing but applications of the axioms of quantity. According to authors such as Vickrey (1970), Ijiri (1975), Orbach (1978), Willett (1987;1988), Chambers (1997) and Musvoto (2008;2011) accounting can only be a measurement discipline if an empirical attribute that is measurable can be found. This implies that measurement can only occur in accounting if the discipline becomes an empirical science.…”