Hicksian Income in the Conceptual Framework

Abacus, Vol. 46, No. 3, pp. 348-376, September 2010

Posted: 9 Feb 2011 Last revised: 16 Aug 2011

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

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Multiple version iconThere are 3 versions of this paper

Date Written: August 25, 2010

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.

Keywords: Assets, Conceptual Framework, Conventions, Executive Stock Options, FASB, Hicks, IASB, Income, Interest Rates

JEL Classification: G30, M41

Suggested Citation

Bromwich, Michael and Macve, Richard H. and Sunder, Shyam, Hicksian Income in the Conceptual Framework (August 25, 2010). Abacus, Vol. 46, No. 3, pp. 348-376, September 2010 . Available at SSRN: https://ssrn.com/abstract=1750390

Michael Bromwich

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)

Shyam Sunder (Contact Author)

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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