Sprouse’s What-You-May-Call-Its: Fundamental Insight or Monumental Mistake?

27 Pages Posted: 3 Apr 2010

See all articles by Sudipta Basu

Sudipta Basu

Temple University - Department of Accounting

Gregory B. Waymire

Emory University - Department of Accounting

Date Written: March 31, 2010

Abstract

We critically evaluate Sprouse (1966 Journal of Accountancy), which prodded FASB towards a balance sheet approach. We highlight 3 errors in this article. First, Sprouse confuses necessary and sufficient conditions by arguing that good accounting systems must satisfy the balance sheet equation. Second, Sprouse’s claim that financial analysts rely on balance sheet analysis is contradicted by contemporary and current security analysis textbooks, analysts’ written reports, and interviews with analysts. Third, and most crucially, Sprouse does not recognize that the primary role of accounting systems is to help managers discover and exploit profitable exchange opportunities, failing which firms cannot survive.

JEL Classification: M44

Suggested Citation

Basu, Sudipta and Waymire, Gregory B., Sprouse’s What-You-May-Call-Its: Fundamental Insight or Monumental Mistake? (March 31, 2010). Available at SSRN: https://ssrn.com/abstract=1583068 or http://dx.doi.org/10.2139/ssrn.1583068

Sudipta Basu

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215.204.0489 (Phone)
215.204.5587 (Fax)

Gregory B. Waymire (Contact Author)

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-6589 (Phone)
404-727-6313 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
227
rank
131,699
Abstract Views
1,429
PlumX Metrics