ABSTRACT
In general the new economy is higher risk and higher reward than the old economy. There are a number of factors pushing us to transform further into a higher risk, higher reward new economy. In particular, in the face of old economy activities moving to the lowest cost producers internationally, it has been necessary for activities based in developed countries to move to higher risk activities to maintain living standards. Again, because of the rising cost of commodities there has been a push to discover new technologies that use commodities in more efficient ways. Given the move towards the new economy, it is logical for shareholders to share the higher risks and higher rewards with other stakeholders. Stakeholder propositions that include promises serve to spread the risks and rewards of new economy activity and bind the Stakeholder Knowledge Network. This chapter looks at current accounting practice in respect of various promises that form part of stakeholder propositions. By way of illustration the chapter looks at customer warranties, the defined benefit pension fund (employees), forward contracts (suppliers or customers), the need to replace fixed assets, fixed interest loans, deferred tax (government) and share options granted to management (Figure 4.2). It is found that the accounting disclosures and the accounting treatment of these promises (contingencies and commitments) is less than ideal in some cases. This chapter is not concerned with short-term promises in connection with trading transactions (debtors and creditors) that form part of working capital. It is concerned with promises to purchase or sell in the future (for example, orders, long-term and forward contracts) insofar as they create current value due to expected changes from the contract price.
