News Letter

TOWARDS AMETA THEORY OFACCOUNTING FOR KNOWLEDGE MANAGEMENT: REVIEW THE

REALITIES TO STAGE THE CRITICAL THINKING OF KNOWLEDGE BUSINESS MODEL

SBE, Vol.20, No.1, 2017

ISSN 1818-1228

Qatar University

and future based model. In contrast, the

accounting researches have addressed the issue

of intellectual as a key reason beyond the value

paradox. Accounting model is a static and cost-

based evaluation model designed to reflect

results of the operational process. Thus,

accounting assets always appear in the balance

sheet at cost, which is the production side

rather than customer side (Amidon, 2003).

This key difference must be taken when

reviewing the validity of accounting model for

knowledge management (See Table-II). The

old logic looks backwards and focuses on

tangible assets. This may match the generation

of the industrial revenues. Accounting for

knowledgemanagement entails newaccounting

theory as the theoretical bases of industrial

accounting have been outmoded. The problem

of the value paradox lays in how to translate

the future into an asset, not a liability (Amidon,

2003). This reflects the conflict between

accounting values and knowledge values. The

industrial accounting values were reasonable,

quick, and easy ratio to guide investment

decisions. The reliability of these values always

restricted to very rigorous economic rules. The

infusion of knowledge management has broken

down the accounting values. The nature of

knowledge values are largely hidden with less

market capitalization recognized in the

financial statements (Holsapple, 2003). The

huge investment in knowledge assets coupled

with the partial accounting recognition rules

have much declined the accounting values and

then usefulness of accounting information

(Austin, 2007). The recognition rules sharply

distinguish between accounting and knowledge

assets (Stone and Warsono, 2003). This

distinction is done to meet the requirements of

asset definition, and as a result for such

accounting treatment, ignorance of knowledge

assets is created. The absence of knowledge

assets is contributed to the huge gap between

market capitalization and book value of

equities. The demise of accounting has come as

a result for ending the marriage between the

historical cost of accounting assets and market

value of knowledge assets. Boulton

et al

(2000) have set stages for the paradigm shifts

in the accounting model. They have compared

accounting and knowledge values for more

than three thousands five hundreds of US

companies over a period of two decades. The

decade of fifties has entitled as the era of

perfectibility because the accounting model

used to provide more than ninety five percent

of the market value of the industrial companies.

That was valid when accounting values were a

reliable measure of the industrial assets and

accounting rules are performance metrics of

the industrial businesses. Later, every value

has gone astray to its own way. The accounting

values now provide only thirty percent of the

market value of knowledge companies (Lev,

2001). The accounting values are not matching

knowledge values precisely, because financial

statements tell what has happened not what

expected. The increasing irrelevance of

accounting information is indicated by the

paradox of accounting model cost vs. value.

However, ignoring knowledge assets as result

to rules of recognition contributes to

phenomena of information asymmetry of

accounting. That is, since the ignorance is at

the heart of accounting model, restructuring

accounting rules is a must to overcome the

problems of the partial recognition. Finally,

integration of the recognition rules with the

practices of knowledge management is urgent

for structuring a meta-accounting theory for

knowledge management. For example,

capitalizing research and development and

internally generated goodwill. This rule can

lead to subsequent changes in earnings and

then improving relevant of accounting

information (Hall and Mairesse, 2006).