Search

This article presents the methods in developing a conceptual framework for all the activities involved in financial reporting in the U.S. Accounting theory has, for the most part, developed out of generalizations from accounting practice rather than out of a framework of objectives and principles which might dictate the measuring and reporting techniques to be followed. A key problem in developing a conceptual framework is the importance of recognizing the necessity of distinguishing among judgments to be made at the various levels of the financial reporting process. The objective of financial accounting is to provide economic information to permit users to make informed decisions leading to an effective allocation of scarce resources and the accomplishment of objectives. An acceptable deductive framework has not been developed to date for several reasons: (1) a failure to distinguish among various levels of accounting judgment; (2) an unwillingness to build on an acceptable framework rather than wait for an ideal framework; and (3) a passive acceptance of a democratic, inductive approach in preference to an autocratic, deductive approach.

The article addresses the uniformity-diversity debate over the application of accounting principles to corporate financial reporting in 1967. Whether the question concerns revenue, cost of goods sold, depreciation, research and development, or any other significant income statement item, it is necessary to distinguish between a criterion and the method itself. A current bottleneck in the development of accounting principles is that there are either no criteria or they have been so vaguely stated that they do not constitute an effective guide. In addition to the investment credit, it appears that a free choice is now being made in reporting for inventories, pensions, and some forms of income tax allocation, among others. Those in favor of more uniformity question whether full disclosure can provide adequate comparability.

This comment on APB Opinion No. 5 reflects, and is on extension of a discussion generated in a seminar of the accounting faculties of Duke University and The University of North Carolina. 4 copy of the conclusions and recommendations was submitted to the Accounting Principles Board for its consideration. Participants in the seminar, in addition to the authors, included, from Duke: Martin L. Black, John O. Blackburn and Robert L. Dickens: from The University of North Carolina: Avery B. Cohan, John D. Edwards, Erle E. Peacock, Isaac N. Reynolds and J. Meade Wright. [ABSTRACT FROM AUTHOR]