THE NATURE OF THE ACCOUNTING SCIENCE

Ahmed (XXX) argues that treating accounting as similar to a hard science is problematic. He then gives these two examples:

1st Example: The final profit figure for an entity.

The following events and transactions have occurred in the financial year (XX) for company YY :

The net profit before depreciation is $250 000.

The company has the following noncurrent assets:

Building A cost $600 000 five years ago. It has a fair value of $1 000 000 and a further useful life of five years.

Building B cost $300 000 20 years ago. It has a fair value of $2 000 000 and a further useful life of ten years.

In one set of financial reports, the accountant uses the cost basis; in another, the fair value basis is used. Both are acceptable according to the Conceptual Framework and current accounting standards. The financial performance of the entity under each basis is shown below.

	Reporting profit using cost basis and fair value basis
				View 1 (at cost)	View 2 (at fair value)
Net profit before depreciation				250 000	250 000
Depreciation building A				60 000	200 000
Depreciation building B				10 000	100 000
Final net profit (loss)				180 000	(50 000)

2nd Example: Distance in hard science

Scientists can measure the distance between the Earth and the moon at a particular point in time. There would only be one correct distance and the most accurate measure (the measure closest to the true distance) would be the one that represents this faithfully.

Questions:

1. Do you agree with Ahmed argument? and Why?

2- Which concept of the Conceptual Framework this argument is about? Please Explain this concept in details.

3- What implications might this argument could have on accounting standards and treatments?