Realism in accounting

Realism in accountingProf. J.M.S. Risk, B. Com., Ph.D., C.A., F.C.M.A., J.Dip.M.A., F.C.I.S., F.lnst.A.M., C.B.I.M., F.I.M.C.

Indexing term: Engineering administration and management

Abstract: The paper stresses the need for realism, and touches on the widening range of accounting tools,including transaction accounts and measurement accounts. The concept of physical flow accounts is intro-duced, including the aspects of energy and manpower accounting. The periodicity of various physical eventsis reviewed, and the desirability of accounting statements reflecting longer periods than a single year. Theweighted-index method of measuring productivity for an entire factory is described, and certain misap-prehensions are elucidated. The absence of much information about physical assets (fixed assets and in-ventories) is commented on, and certain analyses are suggested, including the use of the 'pension date' forfixed assets, as a starting point for renewal and the financing thereof. The paper concludes with the opinionthat accounting will be of greater service to mankind, the nearer it can be brought to the stage of becominga science. The paper is one of a series on this theme.

1 Introduction

Engineers are fortunate people. As such they deal with phys-ical things, which presumably obey physical laws. Accountantsare not so lucky. They have to try to represent in figuresphysical facts and events of which they may well have incom-plete knowledge and understanding, and they are expected toreveal an accurate report of happenings over so short a periodas a single year. As so many events overlap two or more years,and as many tangible things last for two or more years, thereare problems which require care in computation and under-standing in interpretation.

However, no one has, to the author's knowledge, denied thevalue of accountancy for many purposes, such as a record oftransactions between different parties; as a measurement ofthe use of resources; as an indication of amounts owed by oneparty to another; or as a tally of possessions. This list is not ex-haustive.

The point was well put by an eminent engineer and manager,Sir Charles Renold, first Chairman of Council of the British In-stitute of Management, when he said: 'The extreme importanceof the technique of accountancy lies in the fact that it worksin the most nearly universal medium available for the expressionof facts, so that facts of great diversity can be represented inthe same picture'. This may seem a somewhat ponderous wayof saying that we make use of the symbol of money day-in andday-out without really thinking much about the underlyingaspects of it. Consider, nonetheless, the provision of some rawmaterial from a distant land, perhaps matured or semiprocessedbefore being fed into a production process in one's own coun-try; then the installation of plant and machinery — the crystal-lised brain power of some inventive genius, perhaps long sincedead — the use of machinery by manpower and womanpower,exerting their skill, physical effort, and time, instantaneouslyused and expended. All these and other facilities are combinedso as to produce a finished product, to which one may attach amoney figure intended to represent the sum total of all the re-sources used and utilised in making it.

However, to conclude this introduction on a lighter note,Nigel Balchin in his entertaining description of 'How to run abassoon factory' [1] tells us 'Don't be surprised if your costingdepartment tells you one day that a thing costs twenty pounds •and the next that it costs four and threepence. Costing depart-ments always do that, and they will certainly be able to pro-duce figures which prove absolutely conclusively that theywere right on both occasions. Anyhow, they probably were.It's just that there are several ways of looking at costs. Avoidthe way that involves looking two ways at once. It is confusingand leads to strabismus'. Of course Balchin is right. If one were

Paper 1944A, received 12th January 1982© 1982: J.M.S. RiskProf. Risk is with the Department of Accountancy & Business Law,University of Stirling, Stirling, FK9 4LA, Scotland

to accumulate the costs involved in making a prototype bassoonthey might well (in the past) have come to £20, whereas theaverage cost of an article over a production run of several thou-sand would be very much less. One has to know the precisefacts and circumstances to be able to represent faithfully inmoney terms what has happened.

2 Need for realism

2.1 Physical picture

It has often been said that a good costing system should matchthe physical processes, operation by operation, and process byprocess, so that a person with knowledge of the physical oper-ations should be able to visualise what has happened physicallyfrom an examination of the cost statements. That is the kindof thing we must seek in all kinds of accounting statement. Inthe eye of the beholder, the statement should conjure up amental picture of the physical reality behind the statement. Ifthis cannot be done — or cannot be done correctly — it maywell be that the accounting statement is false. For example, afixed asset with a value appropriate to a new custom-builtwarehouse may not conjure up a picture of a centuries-oldcotton mill used for storage [2], i.e. one may try to updateprices, but one cannot backdate physical progress and change.

Unless accountancy can be based on firm factual foundationsthere is little hope for it ever developing into a science of thequality of the physical sciences. To do so, it needs to adoptthe tools of the physical sciences [3]. Among these I wouldinclude the use of scientific method whenever applicable, anoverwhelming effort to measure all that can be measured, andthe strict application of the rules of taxonomy (or, classification,if the longer word be preferred). Add to these, realism, andone may begin to see a more hopeful future for accountancyand hence a greater chance that it will be found of use bymanagers.

Engineering must surely be as old as mankind, if one acceptsthe use of crude tools such as handily shaped stones as a be-ginning. But was it not the 19th century AD before an effortwas made to unify common practices, such as the use of screwthreads, through the efforts of Whitworth? Therefore, ifaccountancy has emerged from what in medical lore may bedescribed as the 'barber surgeon' stage, I would say that in mybelief accountancy is merely at the beginning of the 'Whitworth'stage of development. Moreover, one should note that uni-formity of practice does not necessarily connote perfection or.even excellence. A standard has been defined as a basis ofcomparison and a measure of excellence, and so the accountingpractices emerging during the 'Whitworth' stage are bases forcomparison but are not necessarily a measure of excellence.

2.2 Transaction accounts

Now, to those who are familiar with the work done by publicauditors what has been said may sound somewhat harsh, forwithout the conscientious work done by accountants in general

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it may be open to doubt whether the monetary affairs in anyindustrially advanced country would function as smoothly asthey do, if indeed at all. True, it is, that for thousands of yearsthe keeping of records has been of service. True, it is, that sincethe end of the 15th century the method called 'double entrybook-keeping' has been in increasing and widespread use, andhas been found to be of great value. It is a tool which has beenof considerable service to mankind. Indeed the German poetGoethe claimed that it was among the more important inven-tions of mankind. (One cynic has commented that Goethe wasclearly having an 'off-day'.) Yet, despite all that, double entrybook-keeping deals mainly with the recording of transactionsamong various parties. This is where its use is most prevalent;i.e. in recording purchases and sales, or payments for expensessuch as rent and rates, or the payment of wages and salaries, orthe purchase of materials.

Therefore, one may take note, in passing, of the form ofaccounting statement which summarises transactions by theirnature, e.g. material purchases, payment of wages, payment ofrent etc. An example is given in Appendix 12.1. A considerableamount of helpful information can be extracted from such astatement, but this is not the place to delve into that topic.

3 Measurement accounts

3.1 Introduction

The words 'measurement accounts' signify that one is measur-ing the activities of the organisation, and not merely summar-ising the transactions which have occurred. One is trying tovisualise the physical movement of materials and parts and theactions of men and women in a factory or elsewhere. Wheneverpossible, there should be some form of physical measurementas the basis for the entries in the accounting statements.

3.2 Standard cost accounts

One of the most useful forms of accounting statement is thatresulting from the use of flexible budgetary control and stan-dard product costs. This form may be considered to be themost sophisticated method, and there are many facets to suchsystems. So far as realism is concerned, they are able to revealaspects not thrown up by simpler methods. For example, inthe use of material and manpower resources they can showwhere wastage is occurring; or in the use of capacity over- orunder-utilisation can be revealed. For management, this systemis probably the most useful. But just as an engineer is notrestricted to one tool, so a manager should make use of allaccounting tools, as and when it is appropriate to use them.

3.3 Other forms of measurement accounts

Other forms of measurement accounts include those known asadded value accounts, marginal or contribution accounts, andconversion cost accounts [4]. Simplified examples are given inAppendix 12.2, as is the comparable set of transaction accounts.All start and end with the same figures.

4 Physical flow accounting

4.1 Definition

Physical flow accounting is the name I have given to the re-cording and analysis of the work done on, and the movementof, materials, including work in progress and finished goods. Italso includes the means of such movement, including internaland external transport and the means of manufacture and thephysical services. At first sight, this may not seem to be part ofthe conventional money-based concepts of accountancy. It is,however, such stuff as realistic accounts are made on. It is thepicture of the business or the economic activities of man goingabout his business to produce and distribute the goods andservices needed by the community.

4.2 Example

Some years ago I was involved in cost accounting for the pro-duction of sulphuric acid. At that time, the manufacture in-volved various processes. The acid was found in three states:weak acid; standard acid; and concentrated acid, known asoleum. It was necessary to prepare stock accounts for eachprocess and the quantities held between successive processes.There were inputs of materials and of acid at various points.There were also process losses.

The first stage in the cost accountancy was to discover thequantitative pattern which had occurred, and which existed atthe beginning and end of the period of manufacture. This wasby no means easy, but with good co-operation on everyone'spart, the various problems were solved. The set of accounts —all in quantity terms only — were called an 'acid cycle'. Untilthe physical quantities were known, the costing operationcould not begin. This is the way it should be, in my opinion.However, by no means every type of manufacture lends itselfso readily to the neat procedure just outlined. To the extentthat it may be possible, the physical picture should be preparedfirst of all.

4.3 Advantages

The provision of physical flow figures has several advantages:(i) If the basic measurements are sound, the figures are

objective, and provide a realistic basis for subsequent manage-ment and accounting operations.

(ii) The data are available quickly.(iii) Some forms of waste can be detected quickly.(iv) The figures provide useful information about the level

of production.(v) They provide information relevant to replenishment of

raw material and other stocks.(vi) They also provide information as to availability of goods

for sale or dispatch.

In case anyone reading these advantages may ask whether theyare not outside the scope of accountancy or accountants, Iwould answer that in my view accounting tries to describe theevents and situations of the universe in which we live, usuallyin figures, which may be either in physical or monetary terms[5]. This does not mean that no one other than an accountantshould be concerned with quantitive information. Consider theposition of the medical profession, to which certain powershave been granted. These do not restrict members of the publicfrom seeking to look after their own health, within certainlimits. Nor does the absence of membership of a charteredengineering body prohibit a car owner from attempting to carryout his own repair work. No; in the author's view accountancyis ubiquitous in its application and is of universal use. It mustbe made to serve mankind throughout the world. And whilecertain auditing rights have been restricted by the UK Parlia-ment to those deemed properly qualified for specified auditingtasks, it is open to anyone to make use of accountancy ingeneral. Naturally, as in any sphere of human endeavour, thosewho have made themselves expert in a subject ought to havecertain advantages in the practice of it. What I am proposing isthat engineers and others should learn sufficient about accoun-tancy to be able to interpret various forms of accounting state-ments, and to make use of the information contained therein.

Centuries ago, the ability to read and write English (andthus to keep secrets in the tangible form of written material)was the 'in' management technique — hence the term 'secretary'.Now a further advance is necessary. Any well educated personmust be able to understand and interpret properly preparedaccounting statements, which open a window to many vistasof the real physical world. The key phrase is 'properly prepared'.

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Unless accountancy adopts the methods of other disciplines,including the rules of taxonomy, many accounting statementswill be no better than the somewhat imperfect dialects of animmature language. This need not be so. In the progress to-wards improvement, the aspect of realism is of great import-ance; it may be paramount.

4.4 Flow diagrams

Before one can achieve realism in accounting, one must have aclear picture of the physical events. For this purpose, flow dia-grams can be of the utmost use. This will sound elementary tomany who read these words. However, I think it needs to besaid.

It is interesting to note that a number of organisationsappreciate this point, and have provided illustrations in theirannual accounts and report. For example, in the 1975 reportof the Burmah Oil Mills Ltd. of Pakistan, there is a multi-coloured two page spread showing the sequence in the produc-tion of Vanaspati Gee manufacture, as well as the by-product,soap. Such a chart has a number of uses. It can help new em-ployees to appreciate where their part of the work fits into thewhole process, whereas, to an accountant, it provides an initialpicture of the stages for which separate cost figures may beneeded. It may also suggest to some extent the interdependenceof various suppliers and the company in the ultimate productionof a useful service to the community.

Other organisations which produce such charts include TheBritish Sugar Corporation, and Tomatin Distillers, of Scotland,who make whisky. Yet another is the Associated PortlandCement Manufacturers Ltd. (The Blue Circle Grour^ in their1966 report. It will be observed that the companies mentionedare involved in manufacturing operations of a processing nature.Flow diagrams relating to mechanical engineering tend to be ofa more complex nature.

Within an organisation various uses may be found for flowdiagrams. For example, British Leyland have published such adiagram for their computer-controlled stores for the Mini-Metrocar [6].

4.5 Process planning:'See-Why'

From the same source comes an invention by BL Systems Ltd.called 'See-Why'. See-Why is described as a 'computer inter-active simulation package which enables the user to create adiagrammatic picture of the plant on a colour visual displayunit, and to watch the products moving through and betweenprocesses. It is interactive in such a way that the user can ex-periment witfr-the production method to investigate how ca-pacity might be increased, how bottlenecks can be avoided,how different production mixes can best be achieved, and soon So far, BL Systems has sold 14 See-Why packages tocustomers, including confectionery and chemical manufac-turers, British Telecom, British Airports, the British PostOffice, engineering industries and Birmingham Polytechnic'[7] . Other users include Perkins Engines and Alcan.

The implication for accounting is that if it is to achieverealism it must follow closely the physical flows in the creationand distribution of the product or commodity.

4.6 Con trol and physical flows

Control should be positive rather than negative or restrictive;and control implies a standard against which to measure actualoperations. Control may be considered under the headings:

Accounting control: visualtechnicalcost

Financial control

Here we are concerned with accounting control, and underphysical flows we focus on visual and technical control.

4.6.1 Visual control: An American writer on managementproblems, Mary Parker Follett, wrote that in administrativesituations there should be co-ordination in the early stages,and we may say the same of control. In its simplest form, con-trol is exercised directly by people on the spot, doing what isneeded in the given circumstances: they see what is happeningand they take action to correct the course of events to bringthem into line with the plan. This is what we may call 'visualcontrol'. One example is the application to the control of smallitems of works stores and indirect materials. The saving inpaperwork and time can be considerable. It should thereforebe our aim to organise affairs in such a manner as to permitthe greatest possible measure of visual control.

4.6.2 Technical control: An expanding organisation needsmore employees and more machinery, and this has two mainresults: first, the overall control becomes less direct; and sec-ondly, the manufacturing operations come under technicalcontrol, although this may not be so in the distributive and ad-ministrative fields. By technical control is meant the operationof a machine or process so as to conform to certain predeter-mined requirements of quality and output.

Technical control may also be considered as a form of physi-cal control: the measurement of things, processes and oper-ations. Yet high technical yields may not be profitable if theyare obtained at excessive cost. For instance, in the days when'town gas' was made from coal in vertical retorts, an increasein the therms of gas obtained per ton of coal carbonised couldbe negated by the added expense of the extra time the coalremained in the retorts, the lower yield of the by-product,coke, and the use of additional steam [8].

A diagram of physical flow accounting appears as Appendix12.3.

5 Energy accounting

5.1 In the past

During the 20th century energy costs have become more sig-nificant, but their importance was appreciated in the early partof the century by at least one important chemical manufacturer.'Energy was used sparingly at the Bayer factories even in the'good old days' as may be seen from (an) entry in the Fire Ser-vice's orderly book in 1912'. It reads: 'The factory patrols willpay attention to the consumption of energy (especially at nightand on Sundays), will cut out any unnecessary consumption,and will report accordingly without delay' [9].

In the UK, Cadbury Brothers Ltd. at Bourneville had ex-panded and 'as the factory had gradually increased in size, theexpanding demand for power had been met by the constructionof one additional power station after another, so that even-tually in 1919 there were six separate power-plants. . . . It wastherefore decided to replace the old plants' with a single cen-tralised plant. 'Although the six old plants were efficient units,the centralised plant yielded considerable saving in fuel, labour,and storage space. As it operated on the 'back-pressure' steamsystem, the larger scale plant made it easier to balance the loadsof the departments, thus rendering the departmental organis-ation more flexible'. The same firm also made 'a strenuousendeavour to cut transport costs to the lowest practicable level.In order to do so, efforts (were) mainly directed to the building-up of a system of railhead depots, commencing with one whichwas opened in London in 1922'. Along with the use of vans,'the depot organisation has led to a reduction in transportcosts per ton of nearly 50%' [10]. (Note: this relates to theperiod 1919-1939.)

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The need to make the best use of energy has been recognisedfor many years. The older members of the Institute of Cost &Management Accountants (UK) will recognise the title: 'Powereconomy in the factory' by Todman, one of the text books forthe examination in 'Production methods and services'.

5.2 Need for measuremen t

'The increasing costs of many forms of energy make it moreimportant than ever to ensure efficient use of resources of thiskind. Clearly, physical records are important;measurement ofwhat is produced or purchased is important; and the measure-ment of what is used and what is lost or unaccounted for isequally of importance' [11]. One such recognition is found inLyle's 'Efficient use of steam', in which a full chapter isdevoted to 'the heat balance' [12]. It is the longest chapterin the book, accounting for 25 out of over 800 pp. First pub-lished in 1947, the eighth impression of 1963 tells us that:

'Many factories are in woeful ignorance of how much steamthey are using in various parts of their process; how much steamthey ought to use with their present methods; how much, orhow little, they could use with different methods.'

'Once a factory embarks on the making of a heat balance it isseldom that enthusiasm is not kindled. The making of such abalance generally brings to light so many extravagant processesand practices, that a substantial steam saving is usually obtainedforthwith',

and again'Now a heat balance does not consist only of finding out

where the heat goes. It entails finding out how much heat isneeded as well', and 'the taking out of a heat balance is quite anundertaking. Once the balance has been taken out and we realisehow technically deplorable we are, the costing office can tell usweek by week whether we are improving and at what rate. Theheat balance without costing is of very great benefit; costinggreatly enhances the value of the balance'.

5.3 Research on energy use

Research on energy use goes on apace. Imperial Chemical In-dustries 1979 Annual Report (p. 17) refers to the matter whenit says: 'There is still scope for major improvement in energy-intensive industries. For example, ICI's latest diaphragm cell,first installed at Becancour, Quebec, makes it possible to re-duce costs substantially in new chlor-alkali plants.'

Associated British Malsters (part of the Dalgety Group)report that heat recovery techniques, in which they claim tohave a lead, help to save up to 45% of the heat required bytraditional kilns [13].

Adverting to the German chemical group Bayer, we are toldthat:

'Even at times of low fuel prices German industry in generaland the chemical industry in particular have had to use energysparingly, if only because they would not have remained inter-nationally competitive otherwise. The consumption of energyper unit of goods produced - known as the specific energy con-sumption - has been reduced continuously and during the lastthirty years that of German industry as a whole has been halved'.

'Over the last ten years Bayers AG has managed to cut itsspecific energy consumption by 2.6% a year, on average' [14].

It is also stated that 'since 1973 Bayer's energy and fuel costshave risen by about 130% and 215%, respectively. At the sametime, however, consumption has been reduced'.

In passing, one may note that research on energy is beingcarried out in a variety of places, including the universities, asfor example, within the Department of Management Science &Technology Studies at the University of Stirling.

5.4 Accounting for energy

Many cost accounting systems are a compromise. They try toachieve a number of purposes with a minimum of expense.

Sometimes certain objectives may be sacrificed to economy ofoperation of the system. Whether this should continue to be somay be questioned because the use of microprocessors should,it is hoped, enable any useful set of data to be collected. Thiswould be a welcome change from the situation in earlier yearsof the century, to judge by Elbourne's comments that 'no onewill question that power consumption is a definite factor inany department's expenses for which there ought to be a pre-cise cost available. As a matter of fact the real cost of powerfor even the whole works, when generated on the works, is notfurnished by many systems of cos t ing . . . ' . . . 'it has to beadmitted that the mental conception of a precise departmentalpower consumption cannot usually be expressed in equallyprecise figures'. These views were written sometime between1914 and 1934 [15]. Are they still valid?

How may the costs of energy be collected economically andcomprehensively? The first requirement is a comprehensiveand logically compiled classification scheme [16]. This willneed to cover not only the account headings but also depart-ments, processes, operation, and activities. These may overlap.There will need to be a scheme developed for the specific pur-pose of energy costs.

If an organisation does not generate its own energy needs,the cost of purchased electricity, gas etc. may possibly befound readily from a set of transaction accounts. Here one willfind separate main headings or subheads for such items. But ifa concern generates its own electricity, the transaction accountswill not reveal the total power costs. One will need to turn toone of the forms of measurement accounts. There may or maynot be a separate heading for electricity generation. Some re-grouping of expenses may be necessary for this purpose.

Some useful work on this topic has been done by the DowChemical Company in the USA which has paid marked atten-tion to reducing its energy costs, and has made its accountingmethods available to others [17].

That 'energy cost reduction provides a veritable 'gold mine'of attractive investment opportunities with minimal risk' is theclaim of S.G. Webb when writing on energy auditing [18]'.

It may be felt that energy accounting is simply a specialcase of physical flow accounting. One should aim to establish:

(i) the thermal content of the inputs, e.g. engineers in thegas industry are able to calculate the thermal content of eachtype of coal used to make coal gas per ton of coal used

(ii) the heat produced; or units of energy(iii) the energy utilised(iv) the energy lost in transmission or unaccounted for.

So far as possible, all the above should be expressed in somephysical measure (including estimated equivalents). Thereafter,they should be converted into monetary terms by use of themoney conversion factor — i.e. the cost per unit of varioustypes.

It may be said that realism is closely interwoven into energyaccounting.

6 Manpower

6.1 Human resource accounting

It has been pointed out more than once that the employees ofan organisation represent one of its most important assets,even though they do not appear as part of a figure on the bal-ance sheet. There is no harm in this, so long as it is recognisedthat a balance sheet is not a comprehensive representation ofany organisation; nor is it intended to be so. A full assessmentof a company's past record, present state and future prospectsrequires much more information. But for an understanding ofthe activities, the vitality, the strength and future prospects ofa firm, an analysis of the manpower and womanpower is clearly


desirable. After all, who would wish to take over a collectionof broken-down machinery or some new plant which had notyet been run-in? The metaphor must end there, for humanbeings still in employment at an advanced age are entitled toexpect humane treatment in whatever state of body and mindthey may be.

Various attempts have been made to treat a company'smanpower as though it were an asset which could be incorpor-ated into a monetary balance sheet. None of these methodsseems to be worth the trouble involved, although informationobtained during any such investigation may prove to be of somevalue.

6.2 Manpower strength and status

The compulsory 'social balance sheet' required in France pro-vides a mass of statistics about the labour force, including sick-ness and absenteeism figures, analyses by age, sex and lengthof service etc. A broad functional analysis showing nature orplace of work may also be included. Nothing seems to be hid-den. Accident statistics and labour turnover also appear. Aver-age wage paid and the change from year to year is sometimesshown; occasionally a comparison with the retail price index.Most, if not all, of such items appear in one or other of theannual reports of UK companies, although there is no commonpattern. However, the practice is increasing at quite a rapidpace. So far as the business is concerned, the object of all thesefigures is to try to assess whether from the human point ofview, the business is a healthy organism, and to show to allconcerned that the company cares for those who work in it.

6.3 Manpower planning

Many well established companies have either formal or infor-mal planning arrangements, looking at least 5 years ahead, andsometimes for much longer, say for 25 years in some cases.One important task is to assess the size and type of manpowerand womanpower needed in future periods. Knowledge of thepresent composition and labour turnover rates, along with ex-pected survival rates, assist in forecasting the intake of newemployees needed at various periods, as well as the skills whichmay be required.

Along with physical flow and energy accounting, manpoweraccounting brings a touch of realism into the picture. They arenot the prerogative of the accountant, but the latter, to do hisjob properly, should possess all such information if the lateraccounting figures in money terms are to be well founded, sothat they may truthfully be termed realistic.

6.4 Manpower performance

Based on the work of Frederick Winslow Taylor and FrankBunker Gilbreth, methods for assessing the performance ofmanpower have been developed, and widely used for manyyears. Normally considerable skilled work is needed to establishthe standards to be achieved. The procedures involved havebeen described by many writers, including those of the Inter-national Labour Office. I shall not seek to emulate them. How-ever, there is one useful ratio which does not seem to be usedas often as it may merit. This is what I term the 'time workedratio'.

In a manufacturing business, the employees will need toproduce a certain quantity of saleable goods each year if aprofit is to be earned. For simplicity, assume that 2 weeksholiday are allowed, and that the working week is 40 h. Thismeans that each direct worker should be available for 2000 heach year. If the complement is ten direct workers, there shouldbe 20 000 h of direct work, in theory. How much of this is

achieved? How much may be lost through sickness, throughabsenteeism, or through difficulty in replacing a worker whenhe or she leaves? Are additional hours lost through failure toobtain sufficient raw materials, through machine breakdownsor through problems in obtaining orders in adequate quantityor type needed for the skills of the existing labour force?

Having established the maximum number of hours expected,we may calculate a time worked ratio as follows:

direct hours workedtotal maximum expected hours

x 100 = x% [19]

While this is not a performance ratio, close attention to itshould help to ensure that output is not lost through anavoidable cause.

7 Time periods

If it be conceded that time is the ultimate irreplaceable resource,this paper should have started by a consideration of the periodsof time for which we try to measure what has happened.

In primitive agricultural communities, which do not possesssophisticated implements or make use of fertilisers, the cycleof events may well start and finish within a period of 365 d. Inother circumstances it may be necessary to review activitiesover a longer period to assess realistically how well or howbadly an organisation has performed. For purposes of taxationand distribution of income, a picture of events is usually pre-pared on an annual basis, in so far as such can be prepared withsufficient accuracy, but statements covering a longer periodmay well be more informative and it may be possible to drawthem up with more accuracy. Where materials must remainstored for a number of years, periods longer than a single yearcould be used, even though figures for annual periods are alsoprepared. For example, timber takes some years to mature,whereas whisky may be held in bond for periods such as 7, 10,12, 14 or even 21 years. In insurance, a longer period than 1year will be found in practice.

When the finalisation of some activity — such as bridge orroad building — may occur spasmodically from year to year,the showing of results on a 3- or 5-yearly moving average basiswould be informative.

In some cases it may be useful to show cumulative figuresfrom a starting date to assist in assessing the effects of someactivity. This may apply to such things as research and develop-ment or to some forms of marketing expenditure. As well asthe expenditure, the associated benefits, where these can be es-tablished, could be shown on a cumulative basis. In that case,one may find it helpful to compare the expenditure of one yearor years against the income of a later year or years.

In short, a single year is often too short a period for whichto assess the operating efficiency of an organisation. But forshort-term purposes (e.g. taxation and income distribution)one will continue to provide statements covering a period of ayear, doing one's best to carve out from the rock of time astrue a record as possible of what continued from previousperiods, started within the year and stopped within the thinsliver of time represented by 365 d. An illustration of theproblem is provided in Appendix 12.4.

In passing, the use of the 52-week year, with a 53-week yearevery so often, is in the author's view desirable, and the endingof the financial year at a time when stocks are at a low ebbshould be encouraged; i.e. the use of what is called 'the naturalbusiness year'.

The general rule is to seek the period or periods of timewhich make it easiest to reflect realistically the physical eventsrelating to the firm or other activity.


88.1

Productivity

Definition

What is productivity? In very simple terms it may be expressedas:

MORE FASTER FOR LESS (cost)More means a greater physical output of goods or services;faster implies such production in less time; and less signifies asmaller quantity of resources consumed in the process. Ofcourse one might have an improvement in one factor with theother two being held constant. That would still rank as an im-provement. There are many possible combinations.

Expressed differently, productivity may be defined as a ratioderived from two magnitudes:

(i) an expression of the amount of good work done(ii) an expression of the resources used up in doing the

good work.The term 'work' may be a quantity of material processed, anumber of articles completed, a number of standard hours ofwork produced and so on. The word 'good' is added to elimin-ate the inclusion of defective or second-grade output.

Productivity is a physical ratio; it relates to the quantity ofgoods produced or service given in comparison with the quan-tity of resources consumed. Whereas partial measurements ofproductivity (for example: output per man hour) can often bemade entirely in physical terms, this is not possible when it isnecessary to combine the use of a variety of resources such ashuman effort, the use of machinery and the usage of raw ma-terials. This is where the words of Sir Charles Renold impinge:'facts of great diversity' being 'represented in the same picture'through the use of money as a conversion factor. However, itshould be noted that, even though physical things and effortand so on may be converted into terms of money, the com-bined money symbol is still a representation of physical factors.This means that no element of profit enters into productivitycalculations. Hence, any so-called productivity measurementwhich is based partly on a sales value figure is a misnomer. Thesooner this is appreciated the better. For instance, added valuemay have certain uses as a partial indicator of profit, but itdoes not measure productivity. Considerable confusion hasexisted in this matter.

Consider the implications of defining productivity as theequivalent of some whole or partial profit measurement. Theconsequence would be that no productivity measurement couldbe applied to any part of the armed forces and their supplyservices, or to the civil service, or to local authorities or anyother activity where there was not a product or service sold onthe market.

The whole of the noncompetitive noncommercial sector ofthe economy would be without any device for assessing pro-ductivity.

Such a situation is not to be tolerated; nor need it be [20].

8.2 Partial measures

It is not difficult to find ratios which deal with a single inputfactor, such as labour, combined with the level of production,but this ignores the input of the other factors. In my view, italso ascribes too much importance to the labour input, and sois at least partially responsible for illogical claims on the valueof the output achieved by the use of all the factors of produc-tion. For example, it can readily be shown that the use of avalue added figure in relation to direct labour input (or alllabour) is illogical and subject to many irrational relationships.These may be caused by a change in the selling price of goods,or of the buying price of raw material, or the introduction ofmachinery which replaces labour etc.

Partial measures may be of use to an intelligent management,

but should be scrutinised most carefully should there be anysuggestion that they could form the basis of an incentivescheme. The tool should not be pushed beyond its capabilities.

8.3 Changing price levels

Many attempts at measuring the overall productivity of a firmhave foundered on the problem of how to deal with changes inprice levels. Attempts at using price indices often produce seriesof figures which are so complex as to be incomprehensible andso useless. A former chairman of Imperial Chemical IndustriesLtd., the late Sir Paul Chambers, is reported to have said that ithad not been possible to find a productivity yardstick whichcould be applied to a whole division of the company, whichyardstick would be simple to calculate, easy to understand,and of practical value to the person for whom it was calculated.To overcome this problem, and indeed to obtain a sounderbased yardstick, a method has been devised which may be de-scribed as the 'weighted index method'.

8.4 Weighted index method

The difficulty in comparing one year with another — or with aseries of preceding years — is that circumstances may change:wage rates may have risen; methods may have been improved;old machines may have been replaced with new ones; somemanual operations may have been mechanised etc. Let us ex-amine a method which may overcome these difficulties, or atleast some of them.

Take first the materials yield, by which is meant the outputof good work in relation to a given input of raw material, oralternatively the effect of process etc. loss on the input ofmaterial. Assuming that standards have been fixed so that ayield ratio can be calculated, assume the following results:

Materials yieldYear 1Year 2Improvement

9093

3.33

The calculation implies that the standards have been fixed withequal knowledge and skill from one year to another (wherethere may have been changes in product mix) and that equallysatisfactory accuracy has been maintained in measuring usageand output.

Now examine the direct labour productivity:

Operative performance(i.e. output per hour over the year)Year 1Year 2Improvement

80 units of work85 units

6.25%

Thirdly, bring into account the use of facilities (capacity usage).This assumes that one can measure the capacity available andrecord the actual usage of it. This may not always be a simplematter, but it is believed that an answer of adequate accuracycan usually be established.

Let the results be taken as the following for the capacityusage:

Year 1Year 2Improvement

72788.33

How can we combine these several yardsticks? The methodsuggested is to give effect to the different percentage improve-ments by weighting them according to the amount of moneyinvolved in each factor. One may discuss which year's weightsshould be chosen, year 1 or year 2, or some combination. Forsimplicity in the illustration, the figures for year 2 have beenshown. Therefore, let it be taken that in year 2 the expense


involved — at standard

MaterialsDirect labourCapacity costs (the

rates -

'fixed'

- was as

costs)

follows:

£960640400

2 000

Now let us apply the percentage improvements achieved duringyear 2 to the cost figures shown above:

MaterialsDirect labourCapacity costs

3.33%6.25%8.33%

ononon

£960 =640 =400 =

£32.040.033.3

2000 = 105.3

The improvement in the three factors, when expressed inmoney terms, comes to £105.3 which works out as 5.3% im-provement in productivity. This kind of yardstick can be ex-tended and refined in a variety of ways, if justified by its valueto management at the various levels in question.

It should be noted that the first stage is to calculate physicalyardsticks in respect of each type of resource or the use ofeach kind of plant and machinery. This means that in eachyear the ratios are based on price factors relevant to that year:there is no need to work out complicated and multifarious ad-justments in order to be able to compare one year with another.The comparison is achieved by means of ratios based on physi-cal factors relating to each individual year (e.g. weights ofmaterial used or material at standard cost rates; loss of materialvalued at standard cost; etc.) [21].

8.4.1 Application with two or more indices: There may becases where there are two or more physical indices relevant tosome function and it is thought that these should be taken in-to account. For example, in transport work one might wish toknow for each year:

(i) the tonnage or value or cubic capacity of goods deliveredper truck or van

(ii) miles driven per ton etc. delivered(iii) the miles per gallon of petrol(iv) maintenance hours per van.

Each ratio would be weighted by relevant expenditure; e.g.(i) tons per truck - wages cost

(ii) miles per ton — van fixed charges(iii) miles per gallon — petrol cost(iv) maintenance hours per van — garage mechanics hourly

charge rateOne would obtain a composite productivity index for thetransport function to add to the other factors in the total fac-tory productivity index.

8.4.2 Application in the public sector: A large part of the re-sources of the UK (and in several other countries) is used upby non-profit-aiming organisations. Accordingly, it is vital thatthere should be some way of measuring the productivity ofeach activity from year to year, and for checking whether theproductivity is going up or down. The weighted index method,it is submitted, enables this to be done, provided there is someunit which can be used to measure the work done during anystated period of time.

The method proposed can also be used to provide an answerfor the harassed factory manager who asks at the end of a year:'Are we doing better or worse? I know that the physical out-put went up, but we did have to take on some more hands anda lot of overtime was worked' . . . etc.

To ensure the productive use of national resources, it is

essential to measure the productivity of every form of activitywhere such is feasible, whether in the private or in the publicsector of the economy. It is still more necessary should therebe any tendency for the public sector to increase.

9 Physical assets

9.1 Analysis of physical assets

The physical assets of a company are among the factors whichdifferentiate it from other organisations. It is sometimes sur-prising to find out how little information is readily availableabout such assets. On the one hand there are the land andbuildings, the plant and machinery etc., while the remainder re-lates to the raw materials, the work in progress and the finishedgoods in which the organisation deals. We shall first of all con-sider the plant and machinery and other fixed assets.

9.2 Analysis of fixed assets

Considering how much attention is devoted to the question ofproviding cash to meet the cost of replacing existing fixedassets, it is surprising how little information is publicly avail-able about the age and composition of the fixed assets of majorcompanies. On a question of terminology, as the assets underdiscussion include such mobile things as ships, aircraft andvehicles - which are hardly fixed in position - the term 'capi-tal assets' might be more appropriate. Capital assets are thosewhich have a life of more than 12 months, and are utilised inthe process of conducting the organisation's activities. In prac-tice, those with say no more than a 2-year lifetime, and ofrelatively low cost, may be charged against the operations ofthe year in which they are acquired. Expenditure on toolingfor consumer-durable products such as motor cars is oftenwritten-off over 3 years, with a larger charge in year 1, com-pared with year 2. The third year bears the lowest charge. Sayyear 1 = 50%, year 2 = 33.3%, year 3 = 16.7%. This is basedon the 'sum-of-the-digits' method. (Add the years involved:year 1, year 2 and year 3. This gives 6. Then reverse the yearsequence to read 3, 2 and 1. The latter figures give the propor-tions to write off year by year, e.g. year 1 carries three sixthsof the total.)

Because of inflation, the replacement of an asset after say alife of 12 years will cost, in money terms, much more thanwhen the original asset was purchased. More ready money isneeded. This has to be provided out of profits or borrowing orthe raising of fresh share capital, or possibly the sale of otherfixed assets no longer needed. For example, one company re-porting during 1981 says that 'ten years ago, a delivery vancost £1050. We now have to pay £12 000 for the same vehicle'.Does this seem possible? Have there been no technical improve-ments over a period of 10 years? Consider any popular makeof motor car as it is now and as it was 10 years ago. Inflationcertainly adds to the number of pound notes needed, butgreater capacity, improved technology, lower operating costs,greater safety for the operator etc. also tend to increase thebasic cost.

However, if cash is to be available when needed, one requiresto look into the future and to assess which assets will need re-placing year by year, and so to build up a picture of the mini-mum cash needs. How can one do this unless the present stockof assets is analysed in detail by function, type, date of pur-chase, and expected life cycle?

It is suggested that fixed assets should be analysed by busi-ness function, such as manufacturing, storage, delivery, admin-istration, marketing, research and development or as appropriateto a given firm. Subanalyses will doubtless be needed. Also thetype of asset should be revealed: machine tools, process plant,power generating equipment, steam generation, internal trans-port etc.

280 IEE PROC, Vol. 129, Pt. A, No. 4, JUNE 1982

The date of purchase is important, because from that date,the asset moves towards its 'pension date'; i.e. the date onwhich with normal usage one expects it to cease to be econ-omical to use because of wear and tear — more down-time,more second-grade work, more skilled maintenance required,perhaps more highly skilled operators because of poor con-dition. I have not mentioned obsolescence. I have reservationsabout a not uncommon practice of estimating a shorter workinglife to try to guess at a possible onset of obsolescence beforethe useful physical life has come to its end. There is more thanone way of considering obsolescence.

The use of the 'pension dates' should provide a startingpoint for financial planning, but it should not be forgottenthat assets are not always replaced by the same type, or maynot be replaced at all, because of changing technology, changesin the markets for the products, or other factors. Moreover,the improvements in technology which occur over periods oftime should not be forgotten. Knowledge of physical realityand changes in technology are essential for good forecasting ofexpenditure on fixed assets.

The fourth type of analysis proposed was by expected lifecycle. Assets with a short cycle — e.g. vehicles — need replace-ment more often than those with a long life cycle. Three tofive years is the period stated by one company. The samecompany gives 20 to 75 years for freehold properties. In othercases one is not surprised to find a range of 50 to 100 years forsuch assets. Now, unless one has these 'capital' assets analysedby expected life cycles, it is more difficult to calculate the riseand fall of money needed for replacement purposes, always•assuming that replacement will in the event be required.

Reference has been made to published accounts and thesomewhat sparse information given in them about capitalassets. This comment does not apply to all organisations. Forexample, the nationalised industries have for many years pro-vided more information than the majority of private-sectorcompanies. However, it would be unwise to be critical withoutknowing the extent of the data available within each organis-ation as to the age, function, type and life cycle of the fixedassets.

The age of assets is sometimes given by shipping companies,which record the tonnage and year of purchase of major vessels.Information also is provided by some airlines about their fleet,although not always the age of the planes. One companywhich aims to have a 'young' fleet is Singapore InternationalAirlines which was reported in December 1981 as buying 14new craft worth £955 million, including spares. The reportsaid that the 'announcement reflects SIA's determination toretain its reputation of running one of the youngest fleets inthe world . . .' (Financial Times, 16th December 1981, p.1).

The significance of ageing rolling stock is illustrated byBritish Rail's chart for the Southern Region rolling stockshowing year-by-year the number of units introduced from1947 inclusive through 1980 {Daily Telegraph, 9th December1981). There was heavy investment during the 1950s, beingover half the total number introduced during the 34-year-period.Such stock of course is now over 20 years old; ultimatelyrenewal or withdrawal of the service may happen but as BritishRail illustrate in their hypothetical look forward 'in 1991 allfuture trains may have to be cancelled owing to capital invest-ment shortage'. It is right to look forward and to plan accord-ingly.

In the case of public limited companies one can often findthe approximate age of the fixed assets by working backwardsfrom the most recent year. One can find the amount of newexpenditure year by year from each year's set of accounts(or roughly from tabulated statistics over a period of years),and so establish the proportion of the total at original costwhich is, say, 5 years old, 10 years old and so on. Admittedly

this is a rough and ready method, for the assets bought inmore recent years will tend to be at a higher price level thanthose purchased 10 or more years ago. The obvious defects inthis method simply call attention to the paucity of informationin company reports, which are used nevertheless by those whoseem able to make firm predictions about a company's futurewith inadequate knowledge. Realism in accounting requiresmore detailed information.

9.3 Analaysis of raw materials etc.

Under this heading we shall include work in progress, stocks offinished goods, and works stores and machine spares as well asfuel stocks. It would be useful to be able to follow the progressof raw materials through the manufacturing sequence and on-ward to the customer. This of course can be done internally byeach company, but the information is not yet published insuch a way as to enable the external analyst to do this. Yetsome steps in this direction are provided by the EuropeanFourth Directive on the format of company accounts, nowincorporated into the UK Companies Act, 1981. The additionalinformation to be provided in one or other of the permissiblelayouts should enable a more detailed scrutiny to be made.Realism should be fostered the nearer one can move towardsthe physical events which underlie the accounting statements.

10 Conclusions

This paper has reviewed ways in which accounting can bemade to provide a greater degree of realism than is sometimesfound in practice. It argues for the use of physical figures,whenever possible. Among the topics discussed are physicalflow accounting, energy and manpower accounting, timeperiods, productivity and the analysis of the physical assets.The paper is one of a series of papers devoted to the conceptthat accounting will be of greater service, the nearer it can bebrought to the stage of becoming a science.

11 References

1 BALCHIN, N: 'How to run a bassoon factory' (Hamilton, 1964),p. 85

2 RISK, J.M.S.: "The new accountancy' (Institute of Cost & Manage-ment Accountants of Pakistan, PO Box 7284, Karachi 3, Pakistan,1980), p. 16

3 RISK, J.M.S.: 'Real accounting' (Kolej Tunku Abdul Rahman,School of Business Studies, PO Box 979, Kuala Lumpur 14-26,Malaysia, 1980), p. 8

4 RISK, J.M.S.: 'A fresh approach to a formal structure for account-ancy' (Institute of Cost & Works Accountants, London UK, 1981),Appendix 1; Condensed version: 'The key to a formal structure foraccounting', Management Accounting (UK), 1981, 59, (8), pp. 20-23

5 RISK, J.M.S.: 'A formal structure for accountancy', ManagementAccounting (UK), 1981, 59, (11), p. 12

6 'BL Systems get-together', Administrative Management J., Sept.1980

7 'Process planning problems? First, see how with SEE-WHY', Pro-duction Engineer, 1981, 60, (12), pp. 14-16

8 RISK, J.M.S.: 'Financial control in large-scale undertakings', CostAccountant, 1953,31,(11), pp. 187-201

9 LIPPERT, A.: 'How safe are our energy supplies'. Bayer Reports 46/1981, July 1981, pp. 22-30

10 'Industrial record 1919-1939'. Cadbury Brothers Ltd., Bourneville,1945, pp. 22-23,57

11 RISK, J.M.S.: 'Management accounting - the future'. Institute ofCost & Management Accountants (UK), Oct. 1980, p. 18

12 LYLE, O.: 'The efficient use of steam'. HMSO London, 1947 (8thImp. 1963), pp. 569-570

13 'Dalgety in 1981'. Supplement to Annual Report and Accounts, p. 2914 LIPPERT, A.: Ibid., pp. 24-2515 ELBOURNE, E.T.: 'Factory administration and cost accounts'

(Longmans, Green & Co., 1934), p. 54316 RISK, J.M.S.: 'The classification and coding of accounts'. The In-

stitute of Cost & Management Accountants (UK), 195617 'Management accounting (US A)', National Association of Account-

ants, New York, /..March 1980


18 WEBB, S.C.: 'Financial management of energy resources', Society ofManagement Accountants of Canada, J. Cost & Management, July-Aug. 1980, pp. 4-9

19 RISK, J.M.S.: 'Management accounting in developing countries'.University of Zimbabwe, Salisbury, Zimbabwe, 1980, pp. 4-5

20 RISK, J.M.S.: 'The role of measurement in a competitive planned

economy'. Institute of Cost and Management Accountants (UK),April 1970, p. 4

21 RISK, J.M.S.: 'The role of measurement '. Ibid., pp. 6-7

12 Appendices12.1 Example of transaction accounts

Table 1 : Transaction accounts

Labour and expenses other than direct materials

Production

£

200802010

Distribution, sellingand administration

£

100200

1010

Other

£

Total

£

300280

3020

Payments to or for employees1 Weekly paid2 Monthly paid3 Employee-related items (e.g. Nl)4 Pensions

5 Total employee payments

Other payments (excluding direct materials)6 Indirect materials (inc. petrol)7 Fuel (inc. coal, oil)8 Electricity, gas, water (if purchased)9 Transport (external payments)

10 Rent and hire charges11 Rates12 Insurance13 Other expenses (post, etc.)14 Depreciation

15 Total of labour and expense other than directmaterials

16 Direct materials used

1718 Add: reduction in work in progress

19 Cost of work transferred to warehouse20 Deduct: increase in finished goods

21 Cost of goods sold22 Sales value of goods sold

23 Profit for period (before paying interest)

Distribution of profit:24 Interest25 Taxation provision26 Dividends paid and proposed27 Profit retained in the firm

310

50604010080403020250

9802000

298020

3000300

2700

320

30

1012040402060160

800

800

60400250290

630

806050220120805080410

17802000

378020

3800300

35004500

1000

1000

12.2 Other forms of measurement accounts

Table 2: Added value, marginal costs and conversion costs

Added value accounts

SalesLess: direct materials

Gross added valueLess: Other expenses

Depreciation £3Other £8

—

Net added valueLess: Wages and salaries

Operating profit

Less: Tax £2Dividends £1

Profit retained

£

4824

24

11—

139

—4

3

1

Marginal or contribution accounts


Gross marginLess: Other variable expenses

Net Margin or contributionLess: Fixed expenses

Depreciation £3Other £9

—

Operating profit


Profit retained

£

4824

248

—

16

12

4

3

1

Conversion cost accounts


Gross added valueLess: Conversion costs

Wages and salariesVariable £8Fixed £1

— £9Depreciation £3Other £8

— £11All conversion costs

Operating profit


Profit retained

£

4824

24

20—

4

3

1

Each type of statement — added value, marginal cost (contribution) and conversion cost — has its own uses. All of them can be readily prepared,provided there is correct classification of the constituent items. Note that gross added value is the same as gross margin. But net added value isnot the same as net margin (contribution). Note also that depreciation is a cost for the use of plant and machinery. It is not an allocation ofprofit or a 'sum set aside to help provide cash for future replacement or any other purpose'. These illustrations are part of measurement accounts.They are not statements of cash flow, although the profit retained plus the depreciation may be a useful figure to extract.


72.2. / Transaction accounts for comparison with simplifiedforms of measurement accounts:

Transaction accounts

Sales

Less: WagesSalariesEmployee-related items

£48

RentRatesInsuranceOther primary expensesDepreciation

Less: Direct materials

Operating profitLess: Tax

Dividends

Profit retained

11

20

2824

12.3 Physical

a

Time

Manpower

Energy

Material

Plant andmachinery

Productionoutput

Combinedevaluations

flow accounting

Operations

b

accountingperiods

hoursattended

units used

raw materialquantities

capacity hoursavailable

quantitiesmade

Table 3: Physical flow accounting

Aspects (activities)

c

single, cumulative,irregular, overlapping,averages

clock hours, workproduced in standardhours

solid — coal etc.gasliquid — oil

— petrolelectricityother, e.g. water,solar

importedhome produced

hours worked'standard hours'produced

summariesstandard hours(if relevant)

(i) Energy and materials

Evaluation physical Conversion factors Costs(Prices)

d e f

performanceindicators (partial)time losttime workedratio etc.

physical flowsusedlost

physical flowsyieldswaste; scrapperformance indicator(partial)

capacityutilisationbreakdownstime lost

standard hoursper unit

(ii) Manpower and energyand materials

(iii) Manpower and energy (iv) Weighted productivity indexand materials and machines(capacity usage)

Evaluation in costterms9

cost per hourattendedcost per unitproduced(standard hours)

cost per unit usedloss compared withstandard usage

cost per unit usedcost of waste etc.comparison withstandards

cost of over- orunder-utilisation


72.4 Problem of periodicity

machineryo —

machinery

o -machinery

o

marketing development

o —continuous bui ld-upsome products f lop

__ time

research and

obsolete

- 10 year

but

development takes5 years

takes3 years

turns out to bea dead loss

managementp

training

time

some projects provefruit ful for ten years

or longer ?

may provefruitful in15 years time

Fig. 1 Primitive agriculture may follow an annual cycle of events, but what is the period of the cycle (if any) of a manufacturing business?

The column headed S is intended to represent a single year cut out of a company's entire history. When so many actions and events have an in-fluence (often uncertain) over a period of years ahead, how easy is it to measure a company's profit accurately for a single year at a time? Andyet the accountant has to try to do it - else the taxman and the shareholder will doubtless take umbrage. And without a periodic measurementof the profit being earned, a company may not know how much it can spend on replacing worn-out plant or on new plant, or on increasingwages and salaries. For a single year, 100% accuracy is hard to obtain. An additional calculation of a 3-yearly moving average would be helpfulin many cases.

Professor Risk was the first holder of theChair in Accountancy at The Universityof Stirling in Scotland. The Departmentof Accountancy & Business Law has ex-panded rapidly in response to the needfor more and more graduates aiming toenter accountancy work or more generalfields of industry and commerce. Pro-fessor Risk's career has spanned bothpublic practice and more especially indus-trial and commercial life, in the UK andelsewhere, both as an executive and as a consultant, havingbeen elected as a Fellow of The Institute of Management Con-sultants. A Past President of The Institute of Cost & Manage-ment Accountants, and the recipient of that Institute's Medal,as well as that of the Institute of Administrative Management,he is also a founder member and Companion of the BritishInstitute of Management. In recent years, he has given addressesand conducted seminars in a number of countries in Africa,Pakistan, India, Malaysia and Singapore as well as in the UK.Currently he is conducting research on what he has termed'The new accountancy'. As this is based among other things onrealism and measurement, he sees a close connection betweenthe work of engineers and the foundations of the accountingmodel on which he is working.


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Realism in accounting