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Ahmed Ali Mohammad
27
SBE, Vol.20, No.1, 2017
ISSN 1818-1228
©Copyright 2017/College of Business and Economics,
Qatar University
and Tsai, 2012). It is widely accepted that, the
efficient and intensive use of knowledge
technologies to track manufacturing process,
inventory, and sales opportunities has replaced
physical assets by the organizational assets. As
a consequence, knowledge companies have
been reduced in terms of size and staff (Boulton,
2000). The above realities reflect the
imperatives of the technology approach to
construct knowledge accounting. These
imperatives entail new paradigms for managing
and measuring the financial statements. This
new approach is not surprising since the
technology has disrupted the traditional
philosophy of accounting. To strengthen and
being highly influential in knowledge discipline
of business, the technology approach has
extended to construct knowledge income
statement (Blaug and Lekhi, 2009). The
technology income assumes that the different
stages of technical readiness shape the
uncertainty and future profit of knowledge
companies. The growing challenges of
knowledge technologies provide real drivers
for the improvement and growth of each item
of income statement (Martin and Leurent,
2017). This is valid for sales revenue, cost of
goods sold, and all sorts of expenses such as
research and development, selling, and
administrative expenses. The above differences
in accounting setting and the paradox related
has to be considered because its create conflict
that affect accounting information in terms of
reducing
reliability,
relevance,
and
understandability. To bridge the theory of
accounting to practices of knowledge
management, it is urgent to mention that
accounting information by its traditional
formats is no longer useful and relevant for
managing knowledge cash flows (Austin,
2007). The absence of knowledge assets
provides reasons for not using financial
statements by knowledge investors. The
technological management of balance sheet is
related to working capital and non-current
assets. The dramatic growth in knowledge
business has re-organized the priorities of
companies. The accounting assets are no longer
Table II: Financial Statement vs Knowledge Financial Statements
(Source: Stewart, 2001)
Income Statement vs. Knowledge Statement
Revenues
Cost of goods sold
Gross Margin
EBIT
Interest and Taxes
Net Income
Revenues
Innovation Cost
Customer Cost
Products/Services Cost
Administrative Costs
EBIT
Taxes
+/- None-cash adjustments
Cash earnings
Balance Sheet Equation vs. Knowledge Equation
Assets = Liabilities + Equities
Investments = Financing
Statement of Cash Flows vs. Knowledge Cash Flows
+/- Operating cash flows
+/- Investing cash flows
+/- Financing cash flows
Change in cash
Cash earnings
Investing cash flows
Free cash flows