Bridge over ocean
1 September 1979 Financial Analysts Journal Volume 35, Issue 5

Prospects for Progress in Financial Reporting

  1. Robert T. Sprouse

Whether or not you view recent changes in financial reporting standards as progress is likely to depend on which of four broad schools of thought you subscribe to. Reactionaries equate progress with protecting the status quo. In their view, progress and change are mutually exclusive. Revolutionaries want to throw out the whole set of existing financial statements and replace them with a new set. Some reject all financial data based on historical cost; others reject all data based on accounting accruals. They cannot agree among themselves on what to reject.

Pragmatists share outside users’ concern with the effect of alternative accounting methods on comparability among reporting companies. In their eyes, progress consists primarily in narrowing the range of acceptable accounting alternatives. “Disciplinists” regard the elimination of alternative accounting methods as genuine progress only if it is accomplished within a conceptual framework—the kind of framework that can guide resolutions of accounting issues even in the absence of specific promulgated standards.

The author confesses that he subscribes to the fourth school: In his view, real progress in financial reporting requires something more pervasive and long lasting than ad hoc resolution of the hot issues of the day.

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