Users of financial statements information have different interests and needs. The differences of interests force the providers of financial statements to face a trade-off between relevance and reliability as the qualitative characteristics of the content of financial statements information.
According to Drs. Ibnu Qizam, S.E, M. Si, Akt., in practice, relevance and reliability could not be displayed together maximally of an information object in financial reporting. Thus, what are possible are optimal conditions in which at the time only one of the characteristics (relevance or reliability) which may be more emphasized at the expense of other characteristics. "Accounting which is largely based on historical value, for example in measuring assets, is one example of how accounting sacrifices the value of relevance to increase reliability," he said at the BRI Auditorium, M.Si and Doctoral Program in Faculty of Economics and Business on Friday (29/7).
Lecturer from Islamic Finance Program Studies Faculty of Shariah, UIN Sunan Kalijaga Yogyakarta said about this in the examination of his doctoral program. He defended his dissertation 'Economic Value of Financial Statements Information Risk and Relevance of Fundamental Risk', with the promoter Prof. Dr. Jogiyanto H.M., M.B.A. and co-promoter Dr. Hardo Basuki, M. Soc., Sc.
He said that if only emphasizing on the reliability in measurement, recognition and presentation of accounting data, it will implicate the diminishing usefulness level of financial statements since the financial statements become irrelevant. As a result, there will be financial information that comes from other media besides the financial statements produced by accountants. Conversely, if only emphasizing on the relevance in the measurement, recognition and presentation of accounting data, the users of financial statements no longer believe in the information submitted since the measurement, recognition and presentation of accounting data is not verifiable. "It is biased and inaccurate in symbolizing the posts in the financial statements. As a result, the financial statements also face the issue of usefulness for the users," he said.
Concrete example of how accounting sacrifices the value of relevance to emphasize reliability can be seen on the Interbrand survey report. It is mentioned that Coke has a brand value estimated at $72.5 billion, which represents 51% of the total market capitalization value of its shares. Nike has a brand value estimated at $ 8 billion, which represents 72% of the market capitalization value. Two other brands, Hertz and Adidas, respectively have a brand 110% and 151% of the market capitalization value.
Another example is in the R & D accounting, it was reported that Microsoft is expected to release funds for R & D amounting to $3.8 billion, while Ciso to spend $2.7 billion. "Of course, the result is that the two companies become the market leader, hence the cost of R & D in this context is actually an investment that creates “future economic benefits' despite the fact that the sheet has not given the space to the cost of R & D as an investment post," he explained.
Quoting the opinion of Entwistle and Phillips, the man born in Jepara, January 2, 1968 describes all of them are considered an ‘iceberg' phenomenon of intangible assets that has not been revealed as a whole, because, once again, they have yet to wait for a reliability signal which is possible to be admitted in the financial statements (balance sheet). All of them shows how the provider of financial statements information is always facing the trade-off problem of reliability and relevance, not only because of the limitations of measurement and recognition in accounting systems, but also changes and the circulations of 'hard assets' and 'soft assets' that are so quick at a company in line with the changes of the present business environment.
"In the past, most of the company's assets are tangible assets, like buildings and machines, now invisible assets or intangible assets like brand, corporate image or goodwill are increasingly dominant. Moreover, the evolution of a modern enterprise with conglomeration that result on subsidiary cooperation, assets renting is increasingly blurring the boundaries of traditional corporate boundaries. Current accounting system is considered unable to capture the rapid turnover of the modern enterprise. This means that the usefulness of accounting information decision once again has another tough challenge," said the husband of Emy Fatmawati and the father of three children who is declared as 1440th doctor graduating from UGM.