Hicksian Income in the Conceptual Framework
London School of Economics
Richard H. Macve
London School of Economics & Political Science (LSE) - Department of Accounting and Finance
Yale University - School of Management
March 22, 2010
In seeking to replace accounting ‘conventions’ by ‘concepts’ in the pursuit of principles-based standards, the FASB/IASB joint project on the conceptual framework has grounded its approach on a well-known definition of ‘income’ by Hicks. We welcome the use of theories by accounting standard setters and practitioners, if theories are considered in their entirety. ‘Cherry-picking’ parts of a theory to serve the immediate aims of standard setters risks distortion. Misunderstanding and misinterpretation of the selected elements of a theory increase the distortion even more. We argue that the Boards have selectively picked from, misquoted, misunderstood, and misapplied Hicksian concepts of income. We explore some alternative approaches to income suggested by Hicks and by other writers, and their relevance to current debates over the Boards’ conceptual framework and standards. Our conclusions about how accounting concepts and conventions should be related differ from those of the Boards. Executive stock options (ESOs) provide an illustrative case study.
Number of Pages in PDF File: 41
Keywords: Income, Hicks, Conceptual Framework, FASB, IASB, Assets, Interest Rates, Conventions, Executive Stock Options
JEL Classification: G30, M41, N30
Date posted: March 31, 2010
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