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

assets. A new challenge is how to manage,

measure, report, and maximize the new revenue

assets such as customer’s loyalty. As has been

mentioned previously, the problem of the

accounting model is a tangible one in terms of

it account to the cost of raw material and labor.

These realities are the production side (cost

realities) rather than the customer side (value

realities). There is, however, another dimension

of the problem is that how to account for the

time lag between invention and innovation

which can be lengthy. The knowledge

management literatures posit a logical

assumption that is successful knowledge

investments should improve financial

performance by increasing sales and decreasing

expenses or both (Stone and Warsono, 2003).

Unfortunately, this time lag produces large and

immediate expenses which lower earnings of

companies investing in knowledge assets.

Perhaps this practice reduces the accounting

reliability as a business communicator of

financial information. Paradoxically, the

accounting model used to report the traditional

profit rather than the electronic profit. The

nature of both is totally different in terms of

drivers, transactions, and mechanism of

recognition (Cohan, 2000). Furthermore, the

same level of change happened to cost of goods

sold as a key component of calculating the

accounting profit. The cost of goods sold of the

traditional profit has been designed to

accommodate both the cost of the raw materials

and direct labor. The two cost elements are a

mile stone of the cost of the industrial products.

Further, the size of those two cost elements

reaches approximately seventy percent of the

traditional revenue. The logic of this operations

oriented formula is no longer valid under the

assumptions of the knowledge management.

The priorities of knowledge companies produce

different arguments for the logical adequacy of

the cost of goods sold. The research and

development associated with customer loyalty

is the key engine to create the knowledge profit.

Accordingly, the costs of raw material and

direct labor are no longer vital to reflect the

realities of old-line business model. The same

fact is also valid to the working capital as one

of the old realities which drive earnings of the

traditional profit (Mohammad, 2013). In

contrast, the expenses of research and

development associated with knowledge

creation have become significant and urgent

for the existence of any knowledge company.

The notion to be highlighted here is that the

accounting model has been built on drivers of

the traditional profit rather than the electronic.

However, a different perspective of cost of

revenues or cost of managing knowledge’s

base needs to be replaced instead of cost of

goods sold. Another dimension of the problem

is that successful knowledge management

should improve financial performance by

increasing sales and decreasing expenses or

both. In view of the new situation, accounting

revenue power has to be redesigned to combine

technology, market, customer’s base, and

business practices to create the desirable value

and growth. These applications take the form

of new products and services, the development

of new markets, and the introduction of new

organizational form (Amidon, 2003). This

systematic cycle increases net value for

customers. Increasing customer loyalty can be

a source to create extra cash flows and then

increase shareholder value. Thus, the structure

of statement of cash flows has become useless

for knowledge management initiatives. The

cash flows of knowledge companies are

triggered by introducing new technology which

acts as a driver for new applications in the form

of new products and services. The effective

marketing of these products and service

develops new markets and in consequence

increasing the market shares locally and

globally. Such dynamic process always

contributes to growth and survives of which