Two new publications by Prof. Eno L. Inanga
Two new publications by Prof. Eno L. Inanga
February 1st, 2008
http://www.msm.nl/1/1/uk/news/two_new_publications_by_prof_eno_l_inanga/2
Professor Eno L. Inanga, Emeritus Professor of Accounting and Business Finance had the honour to publish two of his newest papers. The first paper called: ‘A Survey of Investors’ Current Perceptions and Valuation Approaches at Jakarta Stock Exchange’ was published in the ‘International Research Journal of Finance and Economics’ magazine (ISSN-1450-2887 Issue 10 (2007), Pages 175-206). This paper was made together with Sugiharto and Roy Sembel and provides the results of a survey of the investment practices and perceptions of major portfolio investors currently active in the Jakarta Stock Exchange (JSX) in Indonesia.
The second paper called ‘Financial Accounting and Reporting in the 21st Century: The Misuse and Abuse of the Pacioli Model’ was accepted, on the recommendation of the Scientific Committee, for presentation in a Research Forum (RF) at the 31st Annual Congress of the European Accounting Association in Rotterdam held from 23rd to 25th April, 2008.This paper was made together with Mr. Wm. Bruce Schneider.
Summary on ‘A Survey of Investors’ Current Perceptions and Valuation Approaches at Jakarta Stock Exchange’
The publication in the ‘International Research Journal of Finance and Economics’ magazine provides the results of a survey of the investment practices and perceptions of major portfolio investors currently active in the Jakarta Stock Exchange (JSX) in Indonesia. The paper also proffers some initial interpretation and analysis of their perceptions of the most important metrics used in valuation and their observation on social, political, economic, regulatory, technological, environmental, and legal (SPERTEL) factors that influence the fundamental factors and values of the equity shares of firms quoted at JSX. The findings of the survey help to shed light on the adequacy or otherwise of the information that JSX provides investors to improve the quality of their hold, sell or buy decisions on their portfolios.
Abstract of ‘Financial Accounting and Reporting in the 21st Century: The Misuse and Abuse of the Pacioli Model’
The reliability of accounting information and the relevance of it to users/stakeholders is of paramount concern in this paper. Our general conclusion is that the Pacioli Model which is the basis for financial accounting and the related financial statements simply cannot provide the type of information that most stakeholders want and need. The inherent structural limitations of the model have been exceeded as a result of the misuse and abuse of the model by GAAP regulators, who have attempted to increase and enhance the information value, i.e. and the relevance of the financial statements.
The practical problem is that relevance is user, time, and situation specific, whereas accounting information is inherently generic. The essential question that emerges at this juncture is: What is the purpose of financial accounting and reporting? In our opinion, the purpose is simply to identify, measure, and record the economic activity of an entity and subsequently provide a stewardship report to the stakeholders: primarily absentee owners. We argue and demonstrate in the paper that it is not the purpose of financial reporting to provide a comprehensive story about the entity as an economic enterprise.
Financial accounting and reporting cannot singularly provide all the information needed to make “an informed assessment of a company” because by necessity it is limited. The information provided is intended to facilitate accountability which, when fully comprehended and combined with other socio-economic-political data, may make a positive, useful contribution to interpretative accounting, i.e., analysis and assessment.
The following discussion explores possible causes for the inability of the Pacioli Model and the classic properties asserted for financial accounting information, that is it is reliable and relevant, to be as useful as expected. We believe that reliability is a function of the financial accounting process, but that relevance is situation specific and, therefore, is a function of the user. We also explore the possibility that accountants and others expect more from financial accounting than it can deliver, i.e., more than a stewardship report. We believe that a different model is needed to meet the demand for information to make a formal assessment of a company. Perhaps a biologist or physicist will provide the conceptual framework. In our opinion, it will not be an accountant.