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On the conceptual foundations of financial reporting

On the conceptual foundations of financial reporting

 Dichev, Ilia D.
 2017.
 p. 617-632. English
Balance sheet modelConceptual foundationsIncome statement modelStandard setting
Tác giả CN Dichev, Ilia D.
Nhan đề On the conceptual foundations of financial reporting / Ilia D. Dichev.
Thông tin xuất bản 2017.
Mô tả vật lý p. 617-632.
Tóm tắt Standard setters advocate a balance sheet approach to financial reporting, which views assets and liabilities as primary, and income as just the derivative change in net assets. This paper argues that income is conceptually and practically better described as ‘adjusted net cash flows,’ where the adjustments are the accounting accruals. One proof of that is seen in the existence of whole accounting systems like tax accounting and national income accounting, which emphasize the determination of income but have no balance sheets. The paper also argues that an income-based approach to financial reporting is by nature better suited to reflect the success of advancing cash to earn more cash, which defines what for-profit entities do. There are two main features of the income-based approach. One is attention on the cash flows as the natural foundation for financial reporting because they are precisely determined, and provide a clear link to firm valuation. The other is attention on the accounting accruals, which serve to adjust the raw cash flows to better show the current success of investing cash to ultimately earn more cash. Specifically, the paper argues for revenue recognition which is close to current practice, and for expense recognition which is aligned with the matching principle.
Từ khóa tự do Balance sheet model
Từ khóa tự do Conceptual foundations
Từ khóa tự do Income statement model
Từ khóa tự do Standard setting
Nguồn trích Accounting and Business Research - Volume 47, 2017 - Issue 6
MARC
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520[ ] |a Standard setters advocate a balance sheet approach to financial reporting, which views assets and liabilities as primary, and income as just the derivative change in net assets. This paper argues that income is conceptually and practically better described as ‘adjusted net cash flows,’ where the adjustments are the accounting accruals. One proof of that is seen in the existence of whole accounting systems like tax accounting and national income accounting, which emphasize the determination of income but have no balance sheets. The paper also argues that an income-based approach to financial reporting is by nature better suited to reflect the success of advancing cash to earn more cash, which defines what for-profit entities do. There are two main features of the income-based approach. One is attention on the cash flows as the natural foundation for financial reporting because they are precisely determined, and provide a clear link to firm valuation. The other is attention on the accounting accruals, which serve to adjust the raw cash flows to better show the current success of investing cash to ultimately earn more cash. Specifically, the paper argues for revenue recognition which is close to current practice, and for expense recognition which is aligned with the matching principle.
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