Conceptual Issues in Financial Reporting
French National Center for Scientific Research (CNRS)
Jonathan C. Glover
Carnegie Mellon University - David A. Tepper School of Business
University of Alberta - Department of Accounting, Operations & Information Systems
James A. Ohlson
Hong Kong Polytechnic University - School of Accounting and Finance
Stephen H. Penman
Columbia Business School - Department of Accounting
Yale University - School of Management
Waseda University - Graduate School of Commerce
T. Jeffrey Wilks
Brigham Young University
May 27, 2011
University of Alberta School of Business Research Paper No. 2013-686
Standard setters have sought a conceptual framework to guide development of a consistent set of accounting standards. However, the framework has two key weaknesses. First, it is very broad, lacks a measurement framework, and can be used ex post to justify a wide range of actual accounting standards. Second, all accounting issues are viewed as being conceptual issues. In many cases, we may need a good enough (even arbitrary) standard that coordinates our reporting choices, while at the same time trying to develop some systematic way of choosing measurement methods based on the cost and reliability of those measures.
We examine four key conceptual issues related to consistency that are at the heart of many financial reporting dilemmas: stocks and flows, ex-ante and ex post, conventions and economic substance, and evolution and design by standard setting bodies. Associated with each conceptual issue is an accounting duality; in some cases one side (e.g., stocks) is easier to measure in a reliable manner, while the other side (e.g., flows) is easier to measure in other instances. We suggest that financial reporting would benefit from a willingness to pay attention to both sides, and balance the reliability of measurement in specific issues (a local approach) with broad principles applied across many issues when possible (consistency).
Number of Pages in PDF File: 25
Keywords: Conceptual Framework, Consistency, Verifiability, Conventions
JEL Classification: M41
Date posted: May 29, 2011 ; Last revised: June 11, 2013
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