Hicksian Income in the Conceptual Framework

29 Pages Posted: 30 Aug 2010

See all articles by Michael Bromwich

Michael Bromwich

London School of Economics

Richard H. Macve

London School of Economics & Political Science (LSE) - Department of Accounting and Finance

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Abstract

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.

Suggested Citation

Bromwich, Michael and Macve, Richard H., Hicksian Income in the Conceptual Framework. Abacus, Vol. 46, No. 3, pp. 348-376, September 2010. Available at SSRN: https://ssrn.com/abstract=1666475 or http://dx.doi.org/10.1111/j.1467-6281.2010.00322.x

Michael Bromwich (Contact Author)

London School of Economics ( email )

Houghton Street
Department of Accounting & Finance
London WC2A 2AE
United Kingdom
+44 7 1955 7323 (Phone)
+44 7 1955 7420 (Fax)

Richard H. Macve

London School of Economics & Political Science (LSE) - Department of Accounting and Finance ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6138 (Phone)
+44 20 7955 7420 (Fax)

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