Abstract
We investigated through experiments vagueness among property, plant, and equipment (PPE), intangible asset and inventory accounts. To semantic vagueness among items, epistemic vagueness is added in relation to liquidity order classification. Traditional dichotomy current/non-current classification of balance sheet items seems to have been used as a straitjacket, where inventories are current assets, and PPE and intangibles are non-current assets. While gray zone is ignored, items that lay on that are swept under the rug, i.e. arbitrarily classified in one way or another, hence, information asymmetry persists, and is neglected by auditors and standard setters. Literature suggests that the increase of information about underling economic transactions mitigate vagueness. Through the configurational approach, we identified five arrangements according to the intensity of property rights transference. Information about those five arrangements was provided to subjects. Evidences from between-subjects experiments (subjects were 93 MBA students enrolled on Accounting courses) suggest that the argued vagueness is acknowledge by financial statements users.
Highlights
Accounting standards setters and academics have approached significant efforts on assets valuation, especially on fair value accounting (SUNDER, 2008), and more recently, they have been concern with fair disclosure
Due to the fact that accounting framework and standards are based on principles1, linguistic imprecision and factual uncertainty may create some gray zones, where logical classification reasoning must be replaced by analogical reasoning (PENNO, 2008)
Since external parties of the company look for information on accounting, the choice of presenting items among inventory, PPE or intangible assets affects the perception of stakeholders in regards to the entity’s value, performance, liquidity and solvency3
Summary
Accounting standards setters and academics have approached significant efforts on assets valuation, especially on fair value accounting (SUNDER, 2008), and more recently, they have been concern with fair disclosure. Accepted practices are weak correlated to asset’s probability to provide cash inflows This weak sensitivity, especially at the gray zone among inventories, property, plant, and equipment (PPE), and intangible assets, occurs depending on some kind of vagueness present on actual standards concepts. Since external parties of the company look for information on accounting, the choice of presenting (classifying and disclosing) items among inventory, PPE or intangible assets affects the perception of stakeholders in regards to the entity’s value, performance, liquidity and solvency3 Those choices affect the content of managerial performance indicators and consequent decision making in the planning process, for long or short term, and other performance metrics applied in several firms’ contracts with suppliers,. To test the presence of vagueness on IASB’s definitions of inventory, PPE and intangible assets, we developed a between-subjects experiment with 93 Brazilian MBA students
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