Financial report issuers cannot possibly have that foreknowledge about events that may occur after they select the formulas. And events do not occur as regularly as the use of the formulas implies. Moreover, allocation does not even reflect the effects of underlying economic events. Allocation merely takes amounts from the financial reporting territory, such as costs, enters them in the financial reporting map and massages them there. Eldon S. Hendriksen and Michael van Breda, the authors from Southern Methodist University of a leading text on accounting theory, have said that annual depreciation, one kind of allocation, is simply a fraction of the total cost and is not necessarily related to occurrences within the year, so it has no real-world connotations.
Accountants defend allocation mainly on the basis of realization and objectivity.
The smooth formulas used in allocation have that result. By contrast, it seems that the purpose of allocation is to make the empirical phenomena appear to be smooth regardless of the actual variations. Their power to stabilize income reporting is much greater than the power individual issuers have to do so. Those concepts are the main engines driving earnings management today. Realization and allocation should be eliminated to remove their power to manage earnings.