Contemporary Issues in Financial Reporting: A User-Oriented Approach

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ISBN: 9780415702065 | 0415702062
Cover: Hardcover
Copyright: 7/24/2006

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This book analyzes contemporary financial accounting. In doing so it provides a user-oriented guide to the salient issues which affect all aspects of financial accounting. Written by a former Secretary General of the International Accounting Standards Committee, practitioners and accounting scholars alike will find this volume to be an extremely good addition to their libraries.

List of figures

xiv

List of tables

Foreword

xvi

Preface

xviii

Acknowledgments

xxii

Note on assignments

xxiii

Prologue: thinking independently

(24)

PART I Setting the stage

(108)

1 The nature of financial reporting

(16)

Issuers and users

(1)

Functions of records and reports

(4)

Financial reporting as mapping

(1)

Venture reporting versus time period reporting

(2)

Financial accounting versus financial reporting

(2)

Functions of bookkeeping, accounting, and financial reporting

(2)

Financial statements versus economics

(1)

Financial reporting versus financial analysis

(1)

Financial reporting versus income tax accounting

(1)

A science or an art?

(1)

Discussion questions

(2)

2 The incentives of the parties to financial reporting

(32)

Positive and normative research

(2)

Conflicting incentives

(1)

Incentives of users

(1)

Incentives of issuers

(18)

Incentives of outside auditors

(4)

Incentives of citizens

(1)

Incentives of standard-setters and regulators

(1)

Incentives of elected government officials

(2)

Incentives of teachers of financial reporting

(1)

Discussion questions

(1)

3 Designing financial statements by starting with desired results or by applying analysis for the benefit of the users

(43)

Starting with desired results in designing financial statements

(7)

Applying analysis for the benefit of the users in designing financial statements

(21)

Discussion questions

104

(1)

Appendix A: classes of events

104

(2)

Appendix B: current GAAP by classes of events

106

(12)

4 The indoctrination of financial reporters

118

(15)

Origin of the indoctrination of financial reporters

119

(2)

Manifestations of the indoctrination of financial reporters

121

(9)

Virginia and financial reporting

130

(1)

Discussion questions

131

(2)

PART II Issues underlying financial reporting

133

(90)

5 Views on the desirability of stabilizing income reporting by the design of GAAP

135

(12)

Views of official organizations

135

(3)

Reasons that have been given in favor of stabilizing income reporting by the design of GAAP

138

(4)

Reasons that have been given in opposition to stabilizing income reporting by the design of GAAP

142

(2)

Conclusion on the desirability of stabilizing income reporting by the design of GAAP

144

(2)

Lip service

146

(1)

Debating points

146

(1)

6 Measurement in the preparation of financial statements

147

(12)

Measurement, observation, quantification, and calculation

147

(2)

Time of measurement

149

(3)

Measurable attributes and units of measure

152

(1)

Defining the unit of measure in terms of the powers of money

152

(2)

Surrogate measures

154

(1)

Measurement and calculation in financial statements

155

(1)

Measurement and estimation in financial statements

156

(1)

Debating points

157

(2)

7 Historical report

159

(24)

Pertinent characteristics of time

160

(7)

Reflecting in financial statements the financial effects of supposed future events

167

(5)

Reflecting in financial statements current conditions that indirectly involve the future

172

(6)

Reflecting in financial statements the financial effects of events that might have occurred but didn't

178

(2)

Going concern

180

(1)

Debating points

181

(2)

8 The focus of attention in financial reporting

183

(18)

A handy fiction?

183

(1)

Selection of the reporting entity as classification

184

(1)

The original focus of attention

184

(1)

The incomplete evolution of the concept of the focus of attention

185

(1)

Theories about the reporting entity

185

(5)

A complete evolution of the concept of the focus of attention

190

(10)

Debating points

200

(1)

9 The elements of the reporting entity represented in financial statements

201

(22)

Economic resources

202

(1)

Articulation

203

(1)

Definitions of the elements

204

(11)

Accrual basis

215

(3)

Nonarticulation

218

(4)

Debating points

222

(1)

PART III Broad issues in financial reporting

223

(158)

10 The current broad principles

225

(35)

Statement of the current broad principles

228

(10)

Evaluation of the current broad principles

238

(11)

Conformity of the current broad principles with the incentives of the issuers, outside auditors, standard-setters, and regulators

249

(6)

Financial reporting as ritual

255

(3)

Debating points

258

(2)

11 Inflation reporting

260

(13)

Defining the unit of measure in terms of general purchasing power

261

(10)

Inflation reporting and current value reporting

271

(1)

Inflation reporting and reporting on foreign operations

272

(1)

Debating points

272

(1)

12 Presenting discounted future cash receipts and payments in financial statements

273

(13)

The "ideal basis"

274

(1)

The existence of present value

275

(1)

The parentage of the concept

276

(4)

The magic of discounting

280

(1)

The reversal of cause and effect

281

(1)

Presenting solely the financial effects of supposed future events

282

(1)

Nonexistent future events

282

(1)

Conclusion on whether present value is a current condition of the reporting entity

283

(1)

Appendix: the ultimate form of allocation

284

(1)

Debating points

285

(1)

13 Proposed broad principles for reporting on assets using current buying prices

286

(14)

Current buying prices

286

(3)

Presenting fiction

289

(4)

Using the price of an asset not owned or sold

293

(4)

Deprival value

297

(1)

Supplementary information on current buying prices

298

(1)

Debating points

299

(1)

14 Proposed broad principles for reporting on assets using current selling prices

300

(34)

The only current measurable financial attribute

301

(3)

Class A and Class B aspects

304

(1)

Reporting the Class A aspect and disclosing information concerning the Class B aspect

305

(3)

CSPR and the user-oriented criteria

308

(3)

Evidence for the measurement of current selling prices

311

(3)

CSPR and stable income reporting—the foremost objection to CSPR

314

(1)

Foremost conceptual objections to CSPR

315

(4)

Other conceptual objections to CSPR

319

(6)

Other practical objections to CSPR

325

(3)

Wishful thinking

328

(1)

Quiet appeal

328

(5)

Debating points

333

(1)

15 Current and proposed broad principles for reporting on liabilities

334

(17)

Events causing a liability to be incurred

335

(1)

Names of payments required

336

(1)

Events causing a liability to be discharged

336

(1)

Current broad principle for reporting on a liability

337

(3)

Proposed broad principles for reporting on a liability

340

(10)

Debating points

350

(1)

16 Reflecting or reporting prospects in financial statements

351

(12)

Reflecting prospects in financial statements

353

(2)

Reporting prospects in financial statements

355

(7)

Conclusion on reflecting or reporting prospects in financial statements

362

(1)

Debating points

362

(1)

17 Disclosure in financial reporting

363

(18)

A tangle of trees

364

(1)

Information to help users evaluate current prospects

365

(1)

Investments in prospects

366

(1)

Supplementary information

366

(7)

Disclosure overload

373

(6)

Reporting in the financial statements versus disclosure in the notes

379

(1)

Debating points

379

(2)

PART IV Specific issues in financial reporting

381

(126)

18 Reporting in connection with stock options granted to employees

383

(16)

Round one

383

(14)

Round two

397

(1)

Debating points

398

(1)

19 Alternative financial statement reporting practices

399

(12)

Standard-setting and alternatives

399

(1)

Power to reduce alternatives

400

(1)

Alternatives reduced

401

(1)

Alternatives not reduced—notorious cases

402

(4)

Alternatives not reduced—other significant areas

406

(3)

The users yawn

409

(1)

Debating points

410

(1)

20 Display on financial statements

411

(11)

Display on the balance sheet

411

(8)

Display on the statement of income

419

(1)

Display on the statement of cash flows

420

(1)

Debating points

421

(1)

21 Reporting on income taxes

422

(21)

Deferred taxes

424

(2)

Comprehensive interperiod income tax allocation

426

(1)

The rationale

427

(1)

The analysis

428

(13)

Net-of-tax

441

(1)

Earnings management

441

(1)

Debating points

441

(2)

22 Reporting on foreign operations

443

(15)

Four sets of translation rules

443

(7)

Catch-22

450

(1)

Accounting for foreign operation

451

(4)

Reporting on foreign operations and inflation reporting

455

(2)

Debating points

457

(1)

23 Reporting after business combinations and on related goodwill

458

(14)

Requirements before the battle

458

(3)

The battle

461

(5)

Results of reporting after business combinations in conformity with Opinions Nos 16 and 17

466

(1)

The new requirements

467

(1)

Reporting after business combinations to conform with the user-oriented criteria

468

(3)

Debating points

471

(1)

24 Reporting on employee benefits

472

(17)

Reporting on defined benefit pensions

472

(12)

Postretirement benefits other than pensions

484

(3)

Advance funding

487

(1)

Earnings management

487

(1)

Debating points

487

(2)

25 Reporting on leases and executory contracts

489

(10)

Capitalize all active noncancelable leases?

489

(2)

Definition of an executory contract

491

(1)

Capitalize all executory contracts?

492

(1)

Are active leases executory contracts?

493

(1)

Reporting on leases

494

(4)

Debating points

498

(1)

26 Consolidated financial statements

499

(8)

Should consolidated financial statements be presented?

500

(1)

Consolidation policy

501

(2)

A fictitious reporting entity?

503

(1)

Treatment of noncontrolling stockholdings

503

(3)

Debating points

506

(1)

Epilogue: the hijacking of G AAP

507

(6)

Appendix

513

(4)

Bibliography

517

(29)

Author index

546

(6)

Subject index

552

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Contemporary Issues in Financial Reporting: A User-Oriented Approach

Summary

Table of Contents

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