An effort will be made in this project to understand the concept of money measurement as stated out in the Generally Accepted Accounting Principles.
After an understanding is developed in respect of the money measurement concept of GAAP an analysis will be made regarding its effectiveness in measuring the morale and productivity of the employees. The need for conducting this study is immense. The reason for this is that it has been observed that most of the entities that are carrying out business today focus solely on the quantitative aspect of the information that is available with them. In other words focus is given only to those aspects of the business which can directly be measured in quantitative terms. Due to this the qualitative aspect of the business is hampered severely (Camilleri & Camilleri, 2017).
Description of money measurement concept in GAAP
As per the money measurement principle of GAAP only such transactions should form part of the financial statements of the entity wherein it is possible to measure it in monetary value or it can be recorded in monetary value. This means that if a transaction of any sort happens and it is not possible to measure the same in terms of monetary value or it cannot be ascertained what will be the monetary value of the particular transaction, the same will not be recorded as a transaction in the financial statements of the entity (Camilleri & Camilleri, 2017). Hence, it is seen that the shareholders and other stakeholders of the company give a picture or information in regards to only such data or transactions that can be measured in monetary terms. The principle is mainly focussed on the quantitative aspects of the business like the amount of expenditure incurred by the entity, the amount of income that has been earned by the company, the depreciation amount of its assets etc. We can see that there are significant factors that are not even considered under this concept of Generally Accepted Accounting Principles which may have direct or indirect bearing on the financial performance of the entity.
For instance the relationship that has been built by the company with its customers over the period of time helps it in garnering more sales than its competitors (Camilleri & Camilleri, 2017). The same has a positive impact on the financial position and performance of the entity. In another instance if an entity is engaged in the extraction and distribution of oil and gas to its customers there is a huge income to be earned by the company and also all the corresponding expenditure incurred by the entity in this process of extraction is duly reflected in its financial statements (Wang, (2019). The shareholders and other stakeholders of the company can only derive the image if the company’s performance in monetary terms i.e. whether they are earning significant profits or not. On the other hand one of the most crucial aspects of company’s operations is completely neglected. The effect of its operations on nature via depletion of fossil fuel levels and the pollution caused by emissions released by all the vehicles and factories using its product is completely ignored (Wang, (2019).
The relevance of money measurement concept in GAAP in respect of valuation of employee morale and productivity
As discussed above it can be said that the relevance of money measurement concept of GAAP in terms of measuring the morale and productivity of the employees is not very high. The reason for the same is that the concept forbids the entry of all those transactions that cannot be recorded in terms of money (Wang, (2019). In addition to this, no recognition is made in respect of the transactions that cannot be represented in the financial statements of the entity in monetary terms. Due to this, the concept is incapable of measuring the morale and productivity of the employees. It is a well-known fact that the morale and productivity of the employee play a significant role in ensuring that the productivity of the company is increased significantly over the period of time (McNally, Garvey & O’Connor, 2019). The morale and productivity of the employees have a direct impact on the profitability of the company. Despite this fact, the same cannot be recorded in monetary terms as the same cannot be measured reliably in monetary terms. It is seen that being qualitative information it will not be recorded in the financial statements of the company (McNally, Garvey & O’Connor, 2019).
It can be concluded that the relevance or the effectiveness and efficiency of recording the moral and productivity level of employees under the money measuring the concept of GAAP is very low. The reason for this is that it doesn’t allow any qualitative information to be reflected in the financial statement of the company. Hence, it is irrelevant how important that qualitative information is for the company. If the information is incapable of being represented or measured in monetary terms the same will not be recorded in the financial statements of the entity
Camilleri, E., & Camilleri, R. (2017). Accounting for Financial Instruments: A Guide to Valuation and Risk Management. Routledge.
Wang, L. (2019, February). Analysis of the Influence of New Accounting Standards on Enterprise Financial Accounting. In 2019 4th International Conference on Financial Innovation and Economic Development (ICFIED 2019). Atlantis Press.
McNally, B., Garvey, A. M., & O’Connor, T. (2019). Valuation of defined benefit pension schemes in IAS 19 employee benefits-true and fair? Journal of Financial Regulation and Compliance.