Unbiased Accounting Considering Profitability

Abstract

Unbiased accounting is supposed to provide perfect economic information to decision makers. We identify three notions of unbiased accounting in the literature, promoting return-, cost-, or value-disclosure as guiding principle and evaluate them based on the criterion of informational sufficiency. We show that the unbiased accounting regimes systematically differ based on the criterion of unconditional conservatism on a single project level as well as in a steady state framework. Given the existence of systematic biases we show that some common assertions in the literature related to the notion of unbiased accounting are misleading. For regulation, financial analysis, and stewardship purposes the respective regimes are informationally sufficient if and only if the appropriate performance indicator is applied when measuring profitability.

Keywords: Unbiased accounting, neutral accounting, value accounting, conservative accounting, conservatism in accounting, fair value, historic cost, economic accounting, steady state analysis

JEL Classification: M41, M48