Before the Financial Accounting Standards Board (FASB) can develop a useful framework for financial accounting and reporting, three conditions are necessary. The first is that the concepts of the framework be rooted in the real world. According to the definition of assets set forth by Payton and Littleton in An Introduction to Corporate Accounting Standards, most assets are “deferred charges to revenue” waiting to be “matched” against future revenues. Yet when accountants record numbers because they are necessary “to match costs and revenues properly,” rather than because they represent anything in the real world, the presumption is that accountants know what net income for a period should be. It is no coincidence that virtually all such numbers make reported income more stable than it would be without them.

The second condition for a successful conceptual framework is patience and persistence to change certain attitudes and modes of thought. We are all prone to defend the status quo, which is known and comfortable, and to resist change, which is unknown and unsettling. But the handwriting is already on the wall for the present accounting model (often labeled “historical cost accounting”). It cannot even cope with such everyday complications as changing prices and fluctuating foreign exchange rates. The patchwork solutions sought by those determined to save the old model are merely delaying the inevitable.

The last condition for a useful conceptual framework is that the FASB staff take the concepts in the framework seriously. The Board must use the concepts and be seen to use them. Its example will do more to enhance their stature and make them operational than any number of admonitions. On the other hand, nothing will undercut the concepts more quickly than for the Board to retreat from them merely because they result in unpopular answers.