Reliability Makes Accounting Relevant: A Comment on the IASB Conceptual Framework Project
Accounting in Europe, Volume 11, Issue 2, pp. 211-217
15 Pages Posted: 19 Sep 2014 Last revised: 8 Oct 2015
Date Written: September 12, 2014
In July 2013, the International Accounting Standards Board (IASB) welcomed comments to their discussion paper A Review of the Conceptual Framework for Financial Reporting. We argue that the IASB should revisit its decisions about the concepts of reliability and prudence, to address the inherent accounting issue of moral hazard. Within the contexts of goodwill and securitization accounting, we illustrate how reliability and prudence can help standard-setters to identify standards that can address moral hazard. We further illustrate the pervasiveness of moral hazard, using the context of executive compensation arrangements. Ultimately, we conclude that a strong conceptual framework should enhance the credibility of financial reporting. We view this as the fundamental role of accounting.
Keywords: credibility, Conceptual Framework, international accounting, moral hazard, prudence, reliability
JEL Classification: M4
Suggested Citation: Suggested Citation