By Janek Ratnatunga

The financial statements prepared and audited in today’s economic environment can be traced to the industrial era, or the age of the corporation (about 1850), when tangible assets such as machinery were the engines of growth. In this era, financial accountants endorsed or invented rules based on the historical cost doctrine that yielded values which had no counterparts in commercial reality.

The resulting accounting numbers resulted in a delusion of being ‘True and Fair’; which has been further perpetuated in recent times by: (1) the vagueness of the rules and principles on which the accounting framework is based (2) the drive for global consistency in accounting standard resulting in the loss of relevance in local applicability; and (3) the difficulties of verifiability resulting in intangible assets.  This has resulted today in knowledge-economy companies reporting book values widely divergent of prorate-market values.

This paper argues that it is not in the interest of the accounting and auditing profession to perpetuate this delusion of a true and fair view; and challenges the profession to rethink the accounting model.

A Cash Flow Based Model of Corporate Bankruptcy in Australia

By Stewart Jones

This study uses a cash flow based model to predict corporate bankruptcies in Australia.  Using four cash based variables, the model produces very good out-of-sample predictive accuracy (AUC of around .85) which is better than some of the more complex multivariate models in the literature.  The model also outperforms a logit model estimated on Altman Z score variables. The paper illustrates how to calculate and interpret the logit model failure probabilities on the failed Australian company Dick Smith’s recent financial statements.

Integrating Target Costing and Resource Consumption Accounting

By Mostafa Al-Qady, Said El-Helbawy

Target costing is a system of profit planning and cost management that ensures the new competitive product produced by the firm meets customer desires for price, features and functionality, and other subjective factors, while maintaining the firm’s required financial return. Accordingly, target costing requires cost information that has ability to assist in managing costs for future products. While target costing provides an effective tool for generating plans and managing resources, it requires an improved method for determining and controlling costs.

This paper proposes integrating resource consumption accounting (RCA) with target costing to improve the target costing process. Target costing has the ability to work in a feedforward mode in the design stage, while RCA can be run in reverse to assess the future demand on resource pools’ output. The integration of target costing and RCA would help determine estimated costs more accurately, provide cost structures of design alternatives, and thus achieve the target cost.

Introducing the Urban Metabolism Approach for a Sustainable City: A Case of Jakarta, Indonesia

By Juniati Gunawan, Semerdanta Pusaka

Research from Indonesia, especially on Jakarta as a metropolitan city is published only limitedly at an international level. This research that is a small pilot study on urban metabolism is one of few studies on the city. The purpose of study is to introduce urban metabolism, which can be used to analyse the city policies and initiatives from the perspective of urban sustainable development in the context of Jakarta city.

This study formulated the basic framework of urban sustainability of Jakarta based on a number of secondary data sources collected and utilized from the year of 2001, 2006 and 2011. Data was mainly from on-line public information and hardcopy data from the Central Statistic Body (BPS) and the Ministry of Environment (KLH) of the Republic of Indonesia.

This study generated an initial framework of urban sustainability that is expected to be applied further in future studies. It is found that the proposed framework that resulted from this study is able to show how sustainable Jakarta is; and how the city administrator has not been comprehensively highlighting sustainability issues through policies and initiatives.

Accounting Research for the Management Accounting Profession

By Tan Boon Seng.

This paper is motivated by the desire to educate practitioners, who are sponsors and consumers of management accounting research, on the fundamental of research. We review the scientific method with a hypothetical example to investigate the drivers of budget gaming using Vroom’s expectancy theory as the theoretical basis.

This review contributes to the debate of the state of management accounting research arising from the Zimmerman paper in the Journal of Accounting and Economics in 2001, and several responses published in the European Accounting Review in 2002. This review is also useful for practitioners and novice researchers, to understand the principles of research and judge the validity of research output.