Some issues in the measurement of profit Accountants versus economists

Hasan, Zubair (2017): Some issues in the measurement of profit Accountants versus economists. Published in: World Journal of Business and Management: Macrothink Institute. , Vol. 3, No. 2 (30 September 2017): pp. 13-29.

Abstract

This paper discusses a topic rarely addressed in the literature on profit theory over the decades. In empirical work on subjects like growth, efficiency and welfare in mainstream or Islamic economics business profits at times appear as one of the determinants. Such studies perforce use profit data reported in the accounting records. This data is invariably at variance in important ways with the economists’ theoretical view of profit. The cause of divergence is the cosmopolitan forward looking ex ante view of entrepreneurism the economists take in the matter as opposed to the narrow conservative ex post focus of the accountants needed to protect the interest of business proprietors who pay them for the job. There is a need to narrow this gap to improve the results of empirical explorations. This paper identifies and examines some issues like maintenance of capital, evaluation of inventories and the impact of conservatism as causes of divergence as focal points for reducing the gap. It concludes that the economists are obliged more to take cognizance of accounting compulsions than the other way round in the reconciliation process.

• Item Type: MPRA Paper
• English Title: Some issues in the measurement of profit Accountants versus economists Some issues in the measurement of profit Accountants versus economists Some issues in the measurement of profit Accountants versus economists
• Language: English
• Keywords: : Business profits, Efficiency, capital maintenance, inventory evaluation, Conservatism
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M0 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing

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Further Readings

Bryer, R.A. (1993) ‘The late nineteenth century revolution in financial reporting: accounting for the rise of investor or managerial capitalism?’ Accounting, Organizations and Society, -- 18:7/8, pp. 649-690.

Bryer, R.A. (2000): ‘The history of accounting and the transition to capitalism in England. part –one - theory’, Accounting, Organizations and Society, 25:25, pp. 131-162. Edwards,UK

Jeremy, Kay, Jon and Mayer, Colin (1987) The economic analysis of accounting profitability, Clarendon Press, Oxford.

Fisher, Irving (1969) ‘Income and capital’, in Readings in the concept and measurement of income, (Eds, Parker, R.H. and Harcourt Geoffrey C.): Cambridge University Press, Cambridge, pp. 33-53.

Griffin, P.A. (1982) ‘Usefulness to investors and and creditors of information provided by financial reporting: a review of empirical accounting research’, Financial Accounting Standards Board, Stamford, Connecticut. Harcourt,

G.C. (1969): ‘The accountant in a golden age’, in Readings in the concept and measurement of income, (Eds, Parker, R.H. and Harcourt, Geoffrey C.) Cambridge University Press, Cambridge, pp. 127-131.

Kaldor, N. (1969): ‘The concept of income in economic theory’, in Readings in the concept and measurement of income, (Eds, Parker, R.H. and Harcourt, Geoffrey C.) Cambridge University Press, Cambridge, pp. 123-124.

Parker, R.H. and Harcourt, Geoff C. (Eds.) (1969): Readings in the concept and measurement of income, Cambridge University Press, Cambridge.

Salam on, G.L. (1982) ‘Cash recovery rates and measures of firm profitability’, Accounting Review, 57:April, pp. 292-302. Salomon, G.L. (1985) ‘Accounting rates of return’, American Economic Review, 75:June, pp. 495-504