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Conceptual Issues in Financial Reporting

25 Pages Posted: 29 May 2011 Last revised: 11 Jun 2013

Yuri Biondi

French National Center for Scientific Research (CNRS)

Jonathan C. Glover

Columbia Business School

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance

Stephen H. Penman

Columbia Business School - Department of Accounting

Shyam Sunder

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

Eiko Tsujiyama

Waseda University - Graduate School of Commerce

T. Jeffrey Wilks

Brigham Young University

Date Written: May 27, 2011

Abstract

Standard setters have sought a conceptual framework to guide development of a consistent set of accounting standards. However, the framework has two key weaknesses. First, it is very broad, lacks a measurement framework, and can be used ex post to justify a wide range of actual accounting standards. Second, all accounting issues are viewed as being conceptual issues. In many cases, we may need a good enough (even arbitrary) standard that coordinates our reporting choices, while at the same time trying to develop some systematic way of choosing measurement methods based on the cost and reliability of those measures.

We examine four key conceptual issues related to consistency that are at the heart of many financial reporting dilemmas: stocks and flows, ex-ante and ex post, conventions and economic substance, and evolution and design by standard setting bodies. Associated with each conceptual issue is an accounting duality; in some cases one side (e.g., stocks) is easier to measure in a reliable manner, while the other side (e.g., flows) is easier to measure in other instances. We suggest that financial reporting would benefit from a willingness to pay attention to both sides, and balance the reliability of measurement in specific issues (a local approach) with broad principles applied across many issues when possible (consistency).

Keywords: Conceptual Framework, Consistency, Verifiability, Conventions

JEL Classification: M41

Suggested Citation

Biondi, Yuri and Glover, Jonathan C. and Jamal, Karim and Ohlson, James A. and Penman, Stephen H. and Sunder, Shyam and Tsujiyama, Eiko and Wilks, T. Jeffrey, Conceptual Issues in Financial Reporting (May 27, 2011). University of Alberta School of Business Research Paper No. 2013-686. Available at SSRN: https://ssrn.com/abstract=1854545 or http://dx.doi.org/10.2139/ssrn.1854545

Yuri Biondi

French National Center for Scientific Research (CNRS) ( email )

IRISSO - University Paris Dauphine PSL
Place Marechal Lattre Tassigny
75016 Paris
France

HOME PAGE: http://yuri.biondi.free.fr/

Jonathan C. Glover

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States
212-854-1911 (Phone)

Karim Jamal (Contact Author)

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-5829 (Phone)
780-492-3325 (Fax)

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

Stephen H. Penman

Columbia Business School - Department of Accounting ( email )

3022 Broadway
New York, NY 10027
United States
212-854-9151 (Phone)
212-316-9219 (Fax)

Shyam Sunder

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

Eiko Tsujiyama

Waseda University - Graduate School of Commerce ( email )

1-6-1, Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050
Japan
81-3-5286-2048 (Phone)
81-3-3203-7067 (Fax)

HOME PAGE: http://www.waseda.jp/gradcom/index-e.html

Thomas Jeffrey Wilks

Brigham Young University ( email )

School of Accountancy
526 Tanner Building
Provo, UT 84602 84602
United States
801-422-3930 (Phone)
801-422-0621 (Fax)

HOME PAGE: http://marriottschool.byu.edu/directory/details?id=5337

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