Sprouse's What-You-May-Call-It: Fundamental Insight or Monumental Mistake?

Accounting Historians Journal, Vol. 37, No. 1, pp. 121-148, June 2010

Posted: 26 Jul 2010

See all articles by Sudipta Basu

Sudipta Basu

Temple University - Department of Accounting

Gregory B. Waymire

Emory University - Department of Accounting

Date Written: June 1, 2010

Abstract

We critically evaluate Sprouse’s 1966 Journal of Accountancy article, which prodded the FASB towards a balance-sheet approach. We highlight three 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 insinuation 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, without which firms cannot survive.

Keywords: Accounting principles, conceptual framework

JEL Classification: B25, M41, N22

Suggested Citation

Basu, Sudipta and Waymire, Gregory B., Sprouse's What-You-May-Call-It: Fundamental Insight or Monumental Mistake? (June 1, 2010). Accounting Historians Journal, Vol. 37, No. 1, pp. 121-148, June 2010. Available at SSRN: https://ssrn.com/abstract=1649088

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)

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