Fair Value Accounting Treated Unfairly by Accountants

• In Event: Financial Accounting and Reporting 2

Abstract

Existing literature has long agreed that one of the purposes of accounting is recording and reporting events and the resulting assets and equities. The existing Conceptual Framework emphasizes the centrality of the role that events and, particularly, cash-related events play in current accounting practices. However, none of the authoritative pronouncements issued by standard setters and regulators has explicitly formulated the events that are recognized by accounting or how they, and their effects on assets and liabilities are described, quantified, recorded, and reported. In a revision of the existing conceptual framework for financial reporting, the International Accounting Standards Board (IASB) views the faithful representation of assets and liabilities as a central purpose of accounting and appears to regard their measurement as a process that captures the attributes of economic resources and obligations. Consequently, the IASB emphasizes balance sheet elements and focuses on the recognition, definition, and measurement of assets and liabilities rather than events. This paper questions the approach approved by the IASB and attempts to present a concise but relatively complete description of current accounting practices by developing a classification of recordable accounting events, their measurements, and effects. By doing so, we identify inconsistencies and ambiguities in current accounting practices, and suggest a solution to eliminate the deficiency.

Authors

• Sadaharu Takeshima, Kanazawa University

• George H Sorter, New York University - Stern School of Bus