Margins of Error in Accounting

Hardcover | February 15, 2009

byDavid R Myddelton

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Margins of Error in Accounting covers the main reasons why published company accounts cannot be completely 'accurate' and the likely extent of the resulting errors. Separate chapters cover: the 'interim-ness' of accounts; the use of current value estimates; the cumulative effect of inflation on money as the unit of account.

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Margins of Error in Accounting covers the main reasons why published company accounts cannot be completely 'accurate' and the likely extent of the resulting errors. Separate chapters cover: the 'interim-ness' of accounts; the use of current value estimates; the cumulative effect of inflation on money as the unit of account.

D. R. MYDDLETON has been Professor of Finance and Accounting at the Cranfield School of Management, UK since 1972 (Emeritus since retiring in 2005). He has written books on the British tax system, inflation accounting and accounting standards. He is Chairman of the Trustees of the Institute of Economic Affairs.
Format:HardcoverDimensions:171 pages, 8.5 × 5.4 × 0.7 inPublished:February 15, 2009Publisher:Palgrave MacmillanLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0230219918

ISBN - 13:9780230219915

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Table of Contents

List of Tables
List of Figures
Preface
Acronyms
INTRODUCTION
1. Accounting rules
2. Inputs and outputs
3. Is too much expected of accounts?
4. Quantifying margins of error
5. Causes and types of error
6. Simple mistakes
II THE INTERIM-NESS OF ACCOUNTS
1. Introduction
2. Fixed assets tangible
a. Depreciation
i. General
ii. Different methods
iii. Different assumptions about life and residual value
b. Capitalising interest
3. Current assets
a. Stocks and work in progress
i. Long-term contracts
ii. Stocks
b. Trade debtors
4. Liabilities
a. Current
b. Longer-term
5. Sales revenue
6. Revenue investments
a. Research and development
b. Staff training
c. Advertising
7. Taxation
a. Current
b. Deferred tax
8. Conclusions
III BASIS OF MEASUREMENT
1. The purpose of accounts
2. Realised and unrealised profits
3. Technical aspects of Current Value accounting
a. Operating gains and holding gains
b. Replacement cost versus realisable value
4. Implications of Current Value accounting
a. Margins of error in current value
b. Possible impact on reported profits
5. Revaluation of tangible fixed assets
6. Goodwill
7. Cash and liquid resources
8. Executive stock options
9. Provision for pensions
10. Discounting long-term liabilities
11. Derivatives
12. Conclusions
IV THE UNIT OF ACCOUNT
1. Money and inflation
a. Money
b. Modern UK inflation
c. The unit of account
d. Impact on accounts
e. Which index to use?
2. Constant Purchasing Power accounting
a. Overview
b. Losses (and gains) in respect of monetary assets (and liabilities)
c. Fixed assets and depreciation
d. Comparisons over time
3. Lucas Industries plc. CPP accounts 1969-1994
4. Foreign currencies
5. Conclusions
V. ACCOUNTING PROFIT VERSUS ECONOMIC INCOME
1. Economic income
a. Capitalising future income
b. Ex ante and ex post income
2. Historical cost accounting profit versus economic income
3. Interest on equity capital
a. Calculating the cost
b. Charging notional interest
VI. CREATIVE ACCOUNTNG
1. What is creative accounting?
2. Incentives and pressures on managers
3. Profit and loss account
a. Overstating profits
b. Understating profits
4. Balance sheet
a. Overstating net assets
b. Understating net assets
5. Presentation and trends
6. Politics
7. Fraud
8. Non-profit and small entities
9. Conclusions
VII SPURIOUS ACCURACY
1. Accounting
a. The appearance of precision
b. Preparers exaggeration
c. Calendar problems
2. Finance
a. Stock market level
b. Earnings per share
c. Cost of capital
d. Valuing equity shares
e. Measuring gearing
3. Economics
a. Prices
b. National income
4. Miscellaneous
VIII NEAR ENOUGH
1. Accounting
2. Sports
a. Football
b. Cricket
c. Other sports
3. Weather
4. Political elections
5. Miscellaneous
a. Weights and measures
b. Transport
c. Medicine
d. Cooking
6. Back to accounting
IX CONCLUSIONS
1. Introduction
2. Interim-ness
3. Basis of measurement
4. The unit of account
5. Accounting profit versus economic income
6. Creative accounting
7. Spurious accuracy
8. Near enough
9. Misreporting profit
10. Preventing avoidable error


Bibliography

Glossary

Name Index

Subject Index