© 1998 American Accounting AssociationAccounting HorizonsV.docx

© 1998 American Accounting Association
Accounting Horizons
Vol. 12 No. 2
June 1998
pp.188-191
COMMENTARY
John K. Wulff and Susan Koski-Grafer
John K. Wulffis the CFO with Union Carbide Corporation and
Susan Koski-Grafer is Vice President-Technical Activities with
the
Financial Executives Institute.
Characteristics of Higii Quaiity
Accounting Standards: Perspective
of the Corporate Preparer
The U.S. Committee on Corporate Reporting (CCR) of the
Financial Executives
Institute is a national technical committee composed of
approximately 40 CFOs, con-
trollers and other senior financial executives of public reporting
companies. CCR and
its various subcommittees meet regularly to track accounting
and reporting issues and
develop responses that present the views and concerns of the
business community as
represented by our members. The authors participate in the work
of this committee.

Financial Executives Institute (FEI) is a professional
organization of over 14,000
senior financial executives in approximately 8,000 public £ind
private companies in the
United States and Canada.
CCR appreciates the opportunity to contribute industry
perspectives in examining
criteria for high quality accounting standards. We view our
participation in this dia-
logue and other comment efforts as part of the essential checks
and balances in the
standard-setting process.
As financial executives in pubhc companies, CCR members are
charged with the
responsibility of compihng, summarizing, analyzing and
reporting large quantities of
data to shareholders, the general public, regulatory agencies and
operating manage-
ment of the companies in which we work. We are also held
accountable for fiscal respon-
sibility, systems of controls and quality financial management
processes that help pro-
vide value for all investors and creditors.
The following are among the framework principles and other
criteria that CCR
takes into consideration when responding to inquiries about
potential accounting stan-
dards projects and assessing proposed accounting and reporting
standards.
1) Standards should be based upon developed principles and
concepts which

account for the true economics of a transaction. The financial
statements
should reflect the substance and significance of an entity's
transactions in
a standard, verifiable manner. Standards should be developed
which re-
quire transactions of similar substance to be accounted for
consistently
even though their form may vary.
Characteristics of High Quality Accounting Standards 189
The user community relies upon preparers to accurately refiect
the eifect of all
financial transactions in the financial statements and to utilize
disclosures to com-
municate information essential to understanding the financial
statements. Rules
should not be required which will cause confusion to the users
of financial state-
ments about appropriate measures of an entity's performance.
While permitting
some level of judgment, accounting rules should nonetheless be
sufficiently defined
to insure that substance rather them form dictates the
appropriate accounting to be
applied to a transaction.
2) A new standard should produce financial information which
is more rel-
evant and meaningful to users in evaluating an entity's
performance than
current standards or practices provide. The information required
by a

new standard should be concise, reliable and improve the
quality of deci-
sion-making effectiveness.
New accounting standards require a commitment of time and
other resources
by preparers as well as by users. Whether this investment is
worthwhile is a func-
tion of the extent to which decision making by users of financial
statements is
improved. Before proceeding with any new standard, there
should be a clear un-
derstanding of the way in which the new financial information
will be used to
improve the quality of decision making by users of financial
statements. For ex-
ample, FAS No. 106 on employee benefits has significantly
improved the quality of
financial decision making with respect to other post-
employment benefits and has
seemed to justify the high cost of its initial application. In
contrast, it is unclear to
many CCR members just how FAS No. 130, which deals with
comprehensive in-
come, will improve decision making.
Additionally, while still in the evaluation stage, careful
consideration should be
given to ensuring that the substance of the transaction is
transparent to financial
statement users. Transparency may require a change in
accounting or, in some
cases, disclosure alone will allow the users to understand the
transaction. While we
recognize that disclosure does not fix bad accounting, in some
situations where the

relevance and rehability of an accounting approach is not clear,
disclosure may
provide the user more complete information. For example,
changing to a fair-value
accounting model may not provide relevant results when
financial statements are
issued many months afber the valuation has been completed.
3) Effective accounting standards are those which have been
founded on a
direct exposure to, and study of, real-world operating
conditions. Rigor-
ous and objective evaluation of the perceived deficiency and an
examina-
tion of the relative effects of the deficiency, must be made prior
to begin-
ning a project.
Principal among the criteria we use to judge a proposed
standard is whether we
see evidence of a real need for change. When a new accounting
and reporting project
is on the horizon, our concern is to ascertain whether the project
is worthy of the
effort which will be needed to properly address the issue,
undergo due process and
see the project to completion. While a headhne news story of a
major malfeasance
may be an appropriate trigger for an inquiry, we do not believe
that a single, or
even a few instances of, breakdown within a larger system
should be accepted,
prima facie, as indicating a need for an accounting rule change.
Instead, we believe
that consideration should be given to the level and significance
of these incidents

relative to the opportunities for such an incident to occur.
190 Accounting Horizons/June 1998
We are skeptical of rule proposals that cite simply "a deficiency
or an inconsis-
tency in reporting" without discussing the actual harm or
problem that results fi-om
the deficiency. We all live in a world of complexity and
ambiguity, so it is not persua-
sive simply to cite an observation of a perceived deficiency. We
want to know why it is
a problem and why it is believed that a new accounting or
reporting standard can
correct it. Field tests should be considered before pursuing any
new standards.
We know that change is costly, and that even analyzing and
debating proposed
change will consume significant resources. Our individual
responsibilities, as fi-
nancial officers of public companies make us very sensitive to
cost/benefit issues.
Our experience tells us that each perceived problem must be
measured against the
broad environment in which some occasional incidents or
problems will occur, re-
geirdless of the rules. Our initial approach of "reasoned
skepticism" may seem nega-
tive to others, however, we are trying to ensure that each new
project represents a
real issue of significance, warranting major activity on the part
of all those involved
in the process.

4) Before promulgation of a new standard, careful consideration
should be
given to determining that the proposed standard will prevent or
minimize
the perceived deficiency.
We are skeptical of rules promulgated in response to real or
perceived "disas-
ters," since our experience indicates that such actions may
overcompensate for the
original problem, create added ongoing costs for all parties
without providing a
commensurate benefit and, most importantly, not effectively
address the core prob-
lem. Often times, changes in accounting and reporting are
proposed to address what
in substance are control issues. Accounting and disclosure of
derivatives is a case on
point. Accounting and reporting standards are high quality if
they fulfill a systemic
qualitative or quantitative need rather than address internal
control issues.
5) In a standard of high quality, a manageable subject is
selected and bounded
to permit completion of a new rule in a reasonable amount of
time. The
process for standard setting should be known, recognized and
accepted
by stakeholders.
Projects may become "too big to succeed." Our preference is to
keep individual
projects to a manageable size. Solving one specific problem is
easier than rewriting

a whole constitution. Projects should also meet periodic
assessments of status vs.
plan with the objective of avoiding "continuous projects."
Projects should have an
established time limit, such as one year, after which the project
would be termi-
nated if not re-justified.
6) A standard where benefits of implementation outweigh the
real or eco-
nomic cost to comply is considered to be of higher quality.
If a new standard better explains or captures the substance of a
transaction or a
series of transactions, a benefit has been obtained. However, if
the cost to manipulate,
analyze and report data associated with compUance is greater
than the benefit de-
rived, the stakeholder may actually lose "real" value in the form
of reduced dividends,
earnings and overall market value. Additionally, if a standard
requires disclosure of
confidential information, which management believes will cause
competitive harm if
disclosed, management may reconsider business decisions in
order to avoid disclosxire
requirements, tiius causing a potential economic loss.
7) A standard should be written to encompass the worldwide
environment
rather than be limited to situations which exist only in the
United States.

High quality standards are developed with full consideration of
approaches
used in other mtgor countries and with an effort made to
improve compa-
rability, where possible.
One of the most vital issues facing financial reporting in the
next five years
is the globalization of capital markets and the acceptance of
International Ac-
counting Standards in the United States capital markets. Indeed,
optimization
of capital market efficiency requires the adoption of one set of
worldwide ac-
counting standards.
8) Standards should have a certain degree of flexibility. They
should be a
clear and concise statement of principles to be followed rather
than a de-
tailed list of provisions and ''bright lines."
It is difficult to envision that a single set of guidelines will be
appropriate for all
circumstances and transactions an enterprise may encounter.
Therefore, it is para-
moirnt that rules be focused on principles and intents so that
appropriate account-
ing and disclosure by each entity may best be left to
management judgment.
9) Disclosures should be limited to key significant data,
concisely presented.
Disclosures should not provide numerous details which are not
used to support

financial decision making by users of the financial statements.
Disclosures should
not be required simply because data is readily available, as to
do so simply "clut-
ters" financieil statements and may tend to obfuscate
significeint data. Similarly, if
data is gathered solely to meet external disclosure requirements,
and is not used by
management in its decision-making process, then its value to
readers should be
questioned.
10) A good accounting standard, has direct, clear and concise
language
which leaves no doubt as to what the standard is designed to
address,
what procedures and information are required, and why this
additional
information is required. There is significant value in "Plain
English"
communication.
A high quality standard is one that is readable and
understandable by those
who must implement the changes. Additionally, frequent use of
examples and a
question and answer section may help the reader better
understand what informa-
tion is being requested more so than many pages of written text.
11) Standards of high quality are those in which a follow-up
procedure has
been included or at least performed.
A standard's relevance is something which should be reviewed

and considered
even after the stsmdard has been issued. Sunset or review
provisions should be
placed in standards to allow the standard-setting body the
ability to ensure the
standard is addressing the perceived deficiency as planned.
In all our efforts, we have the goal of trying to ensure that
chsmges proposed
will be truly improvements, not just changes. We seek the
highest and best use of our
time and the time of all persons involved in accounting standard
setting, as well as the
time of those who manage or invest in our businesses and read
our financial state-
ments. Only in this way do we believe that true value and the
best financial reporting
can be created and maintained.
Accounting Horizons
Vol. 12 No. 2
June 1998
pp.184-187
COMMENTARY
David Kaplan and Elizabeth A. Fender
David Kaplan is Chairman of the AICPA Accounting Standards

Ex-
ecutive Committee and Elizabeth A Fender is the Director of
Account-
ing Standards at the AICPA.
The Development of Comment
Letters on FASB Proposals by the
AICPA Accounting Standards
Executive Committee
BACKGROUND
The Accounting Standards Executive Committee (AcSEC) of the
American Insti-
tute of Certified Public Accoimtants (the Institute) is the senior
technical committee of
the Institute responsible for determining the Institute's policies
regarding financial
reporting matters. AcSEC is authorized to make public
statements on behalf of the
Institute on financial reporting matters without the clearance of
the Board of Directors
of the Institute. AcSEC is also authorized to clear public
statements of other Institute
committees that include references to financial reporting
positions. AcSEC is composed
of 15 members of the Institute, who are knowledgeable in
financial reporting matters,
and who are drawn from public accounting, industry and
academe.
AcSEC considers its comment letters important in supporting
the private-sector
standard-setting process. It is AcSEC's goal to respond to all
significant accounting

proposals issued by the Financial Accounting Standards Board
(FASB) and the Inter-
national Accounting Standards Committee (IASC).̂ Because
AcSEC believes that due
process and the free exchange of ideas on issues are vital in the
development of quality
accounting standards, AcSEC reviews and debates various
positions on proposed stan-
dards in public meetings in order to provide members with the
opportionity to examine
and evaluate each other's views.
This paper summarizes (1) the objectives AcSEC seeks to
achieve in providing
feedback to the FASB, (2) the process AcSEC follows in
conceptualizing, drafting and
debating the positions taken in its comment letters on FASB
proposals, and (3) the
underlying factors that AcSEC considers implicitly while
developing its positions. AcSEC
' In addition, AcSEC reviews comment letters prepared by the
AICPA's Government Accounting and Au-
diting Committee on proposals issued for comment by the
Governmental Accounting Standards Board
(GASB).
The Development of Comment Letters on FASB Proposals 185
believes that its comment letter objectives, process and the
underlying factors are all
important in obtaining an understanding as to how AcSEC's
responses are developed.

OBJECTIVES OF COMMENT LETTERS
AcSEC wishes to provide valuable input to the FASB in its
responses to proposed
documents. Accordingly, in preparing and finalizing its
responses, AcSEC seeks to in-
clude in its responses:
• The positions supported by AcSEC and AcSEC's underljdng
rationale.
• Issues that may not have been identified or considered by the
FASB and AcSEC's
underljdng rationale as to why those issues should be addressed.
• Alternative solutions to accounting issues that AcSEC believes
are preferable to
the proposed solutions, together with AcSEC's supporting
rationale.
• Questionable practices that may develop if the proposed
standard is implemented
and why such practices may develop.
• Implementation problems that may result from adoption of
proposed standards
and why those problems may result.
• Minority views, where appropriate, so that the Board has
access to valid, mean-
ingful views of AICPA members who might not agree with the
majority views and
who may not otherwise respond to FASB documents.
AcSEC's Process
Responses are drafted initially by a designated AcSEC task
force or by an AICPA

industry committee (preparing units) for dehberation by AcSEC.
The process begins
with identification of a standing committee or, more frequently,
appointment of a chair
of a task force that will draft the letter. This decision is made
jointly by the Chair of
AcSEC and the Institute's Director of Accounting Standards (the
Director). Task force
chairs generally are selected fi-om the membership of AcSEC,
but they may be any
AICPA member known to be knowledgeable regarding the
particular area of financial
reporting.
Task force chairs determine the size and composition of task
forces in consultation
with the AcSEC Chsiir and the Director. In selecting a task
force, the objective is to
assemble a group of knowledgeable individuals who may
represent diverse perspec-
tives (for example, the perspectives of different size pubhc
accounting firms, industry
or users) yet who will maintain the pubhc interest as their
highest objective.
Each member of the preparing unit is expected to be familiar
with all aspects of the
proposed FASB document. The preparing imit meets in person
or by conference call
and together develops and debates the views that the preparing
unit will propose that
AcSEC adopt. A comment letter is then drafted and reviewed by
individual members of
the preparing unit prior to distribution to AcSEC members.

Draft responses are forwarded to AcSEC members in accordance
with AcSEC's op-
erating policies. These policies provide that AcSEC members
should have sufficient
time to become familiar with the proposed FASB document and
the preparing unit's
draft letter.
The AICPA staff liaison to the preparing unit, the preparing unit
chair, and
possibly selected preparing unit members present the draft letter
to AcSEC for its
consideration. Contentious issues are highlighted for discussion
either prior to or
at the meeting. For proposed standards that are complex, AcSEC
may participate
in an educational session prior to deliberation of a draft
comment letter, or AcSEC's
preliminary views may be sought before drafting a comment
letter for AcSEC's
consideration.
Although the draft letter initially may present the views of the
preparing unit, the
draft is revised as necessary to consider issues rsiised and views
expressed by AcSEC.
Ultimately, the letter presents AcSEC's views and is signed by
the AcSEC Chair, as
well as the preparing unit chsdr.
As occurs in the standard-setting process, developing positions

for inclusion in com-
ment letters on proposed standards involves evaluating
considerations and factors that
may confiict to some degree. Moreover, AcSEC members come
to the public meetings at
which positions are debated with differing viewpoints, yet a
majority of AcSEC mem-
bers must approve comment letters. Thus, forming an AcSEC-
approved position is a
process that often involves mutual education, a weighing of
advantages and disadvan-
tages of various accoimting solutions, and negotiation
concerning the content and wording
of the letter in order to arrive at a letter that has the support of a
majority of AcSEC
members.^ AcSEC believes this process is one that enhances the
quality of its comment
letters.
Depending on the significance of the changes made to a draft
comment letter subse-
quent to the pubhc meeting, AcSEC will either vote to
positively clear, negatively clear
or have the AcSEC Chair clear the final letter.
AcSEC may occasionally be required to comment on documents
with relatively short
comment periods without having sufficient time to gather
members' views. For example,
proposed FASB Technical Bulletins may have comment periods
as short as 15 days.
The responsible preparing unit prepares comment letters on such
documents for ap-
proval and signature of the AcSEC Chair, subject to AcSEC's
negative clearance.

Factors Considered
Although AcSEC does not use a specific set of criteria in
evaluating FASB propos-
als, AcSEC does consider, explicitly or implicitly during the
course of its deliberations,
particular factors in evaluating proposed standards. Although
the terminology may
differ, many of these factors are also used by the FASB in
evaluating its own and AcSEC's
projects.
The factors listed below were not prioritized by AcSEC, or even
listed prior to AcSEC's
most recent meeting. These factors tended, however, to imderlie
and support the vari-
ous positions debated by AcSEC members during AcSEC's
dehberations. As part of the
process of preparing this paper at its most recent meeting,
AcSEC formahzed its think-
ing with respect to the factors listed below.
1) Substance (or representational faithfiilness). Will the
proposed guidance result in
reporting the substance of the transaction or event?
2) Relevance. Will the proposed accounting result in the
reporting of information that
will be useful to users in making resource-allocation decisions?
(AcSEC is composed
of auditors, preparers and academicians. AcSEC's judgments
about what is useful
information to users are based on intuition rather than specific
research or statisti-
cal studies.)

' Three or more AcSEC members who hold a minority view on
an issue may have their view and rationale
stated in the comment letter. Views held by fewer than three
members are not included in comment
letters.
The Development of Comment Letters on FASB Proposals 187
3) Improvement. Will the proposed standard be an improvement
over current GAAP?
(An accounting solution need not be the one that is most closely
aligned with the
FASB's Concepts Statements to be an improvement over current
GAAP.)
4) Uniformity. Does the proposed standard permit options in
accounting for transac-
tions? In the absence of economic substance that would justify
differences, AcSEC
usually supports the elimination or minimization of financial
reporting options.
5) Clarity. Are the words in the proposed standard easily
understood and will they be
applied in the same manner? Is uniformity accomplished
without setting forth ex-
cessive detail?
6) Consistency. Is the guidance consistent with (1) the
conclusions reached for similar
transactions in other standards and (2) the FASB's Conceptual
Framework?
7) Conflicts. Will the proposed guidance minimize unnecessary

confiicts, such as with
regulatory bodies or between United States and international
standards? Are con-
fiicts justifiable based on an evaluation of the proposed
guidzince in relation to the
other factors listed herein?
8) Simplicity. Is the complexity of the proposed accounting or
disclosure excessive
considering the transaction or event being addressed? Can the
accounting be sim-
plified yet refiect the substance of the transaction, or can
disclosures be simplified
or eliminated?
9) Minimal potential for misapplication. Is the wording of the
proposed standard suf-
ficiently rigorous to prevent misapplication of the standard?
(This factor has been
referred to with increasing frequency as the potential for
"scoundrel accounting.")
10) Comprehensiveness. Are all aspects, transactions and events
that should be addressed
by the proposed standard included? Are there understandable
reasons for not ad-
dressing certain aspects, transactions or events?
11) Operationality. Will the proposed standard be operational in
practice? Will preparers
and auditors evaluating similar facts arrive at similar
accounting and reporting
conclusions? Will the standard stand a reasonable test of time
without excessive
maintenance?

12) Benefits / costs. Are the benefits of the proposal expected to
exceed the costs of imple-
menting and applying it? This factor is considered at various
levels. For example,
AcSEC considers whether there is a sufficiently significant
practice problem to
warrant a new accounting standard, as well as whether the
benefit of a conceptu-
ally superior aspect of proposed guidance outweighs the cost of
implementing it.
AcSEC remains cognizant of previous AcSEC positions on
issues and seeks to main-
tain consistency where appropriate. However, AcSEC embraces
the ongoing educational
and learning process that is a part of standard setting and, where
appropriately sup-
ported by reasonable conclusions, may revise previous
positions.
CONCLUSION
In summary, it is AcSEC's goal to provide meaningful feedback
to the FASB on the
FASB's financial reporting proposals. By considering the
factors and meeting the ob-
jectives listed herein, AcSEC attempts to prepare comment
letters that both represent
the AICPA's best thinking on a proposed standard and are useful
to the FASB in its
deliberations.

Accounting Horizons
Vol. 12 No. 2
June 1998
pp.177-183
COMMENTARY
L. Hal Rogero
L. Hal Rogero is Assistant Corporate Controller of the Mead
Corpora-
tion and is the chair of the Financial Reporting Committee of
the
Institute of Management Accountants.
Accounting Standards
OVERVIEW
In considering the topic to be discussed, the natural tendency
would be to focus
solely on determining the appropriate characteristics of the
"content" of accoxmting
standards. The IMA believes that developing high quality
accoimting standards is as
much a function of having the right "process" as it is having the
right content. In our
view, the characteristics of high quality standards establish the
vision or the ultimate
goal of standard setting, and the research methods that support
the process enable the
Board to realize the vision and attain the goal. Even if the

FASB were to develop the
ideal characteristics of high quality accounting standards, its
ability to deliver on that
commitment would be significantly handicapped by a weak or
ineffective process. Ac-
cordingly, we have organized our comments into those two
categories of suggestions.
We know from our own experience that it is one thing to
identify content and pro-
cess characteristics that make for a high quality product; it is
quite another to integrate
them into the way that "business" is routinely conducted. We
have therefore included a
brief conclusion to our paper that provides our advice to the
Board on what should be
done with the characteristics that result from the Conference
discussion.
PART 1: CONTENT
1) Standards should be written in a clear, understandable
manner, and
their principles should be operational to apply.
The pace of change within corporations continues to accelerate,
and accountants
are increasingly being asked to play many different roles,
thereby reducing the portion
of their time devoted to accounting and fingincial reporting
matters. For example, in
well-managed companies the accounting staff is expected to be
an integral part of a
multifunctional business team, which focuses on corporate
operating and strategic is-
sues. It is therefore important that standards facilitate a quick

understanding of the
requirements and can be implemented in a straightforward
manner. We suggest the
following as principles that will help the Board achieve that
goal.
Comments from the Financial Reporting Committee of the
Institute of Management Accountants at the
AAA/FASB Financial Reporting Issues Conference.
To the Extent Practicable, Base the Standard Upon Concepts
Statements based upon a concept, or imderl5dng theme, are
easier to implement
and explain than standards that represent a list of do's and
don'ts. No standard can
anticipate all questions, but the unanticipated questions are
much easier to resolve in
practice if the standard has an underlying objective or concept.
It is also very helpful to
explain and illustrate the concept by providing examples of its
application to situations
that are likely to occur in practice.
Make Use of Existing Information, When Possible
Standards that leverage information used by management to run
the business tend
to be easier to use and less costly to provide, and are generally
found to be more rel-
evant to all involved. In addition, since the information is
developed to aid in business

decision making, it is reasonable to assume that the information
would be more reliable
than similar information developed solely for external
reporting.
Accept Pragmatic Decisions on Accounting and Disclosure
Requirements
Standards must strike an appropriate balance between the
development of require-
ments that are a pure application of the concept and
measurement alternatives that
accomplish essentially the same result but are significantly less
complex and/or more
cost-effective to implement. A pragmatic approach recognizes
the value of developing
cost-effective requirements and reflects a willingness to
sacrifice a degree of precision
in circumstances where implementation costs can be
significantly reduced or
operationality of the document can be significantly improved.
Provide Operational Transition Requirements
The time between the issuance of a final standeird and its
effective date is frequently
punctuated by frantic activity on the part of companies and
auditors to imderstand and
determine how to apply the new rules. It is important to
recognize that for many com-
panies the issuance of a "brown cover" represents their first
exposure to the principles
of the new standard. With those thoughts in mind, we suggest
that both the method of
transition and the lead time provided for effective dates
represent pragmatic decisions

that sometimes involve trade-offs between preparers and
auditors on the one hand and
users on the other. Standards need to diligently weigh the
evidence and strike an ap-
propriate balEince between those competing needs.
Ensure that the Benefits that Inure from the Principles of a New
Standard
Exceed the Possible Costs
We recognize that cost/benefit considerations aie among the
most difficult judg-
ments to make in developing a new standard. Nevertheless, it is
vital that the Board
advance the state of the art in this area even if it is qualitative
in nature. Toward that
end, it would be helpful to constituents if an explicit analysis of
costs and benefits were
included in the basis for conclusions.
2) Standards sbould provide recognition and measurement
guidance that
seeks to replicate the "economics" of the underlying transaction
or
event.
Preparers, auditors and users find standards more compelling
when the require-
ments follow a widespread view of the "economics." We hasten
to add that our position
is not an endorsement of a fair-value accounting model. Rather,

it is a belief that stan-
dards should require use of measurement attributes for assets
and liabilities that are
consistent with their intended use including, where appropriate,
historical cost.
We consider the use of different measurement attributes that are
appropriate for
the asset or liabihty in question to be a strength of the current
model rather than a
weakness. Further, we beheve that as changes in the model are
contemplated, the Board
should seek to accommodate historical cost measures when that
basis is most consis-
tent with the underlying business purpose for holding an asset
or incurring a liability.
Stated another way, we believe that there continues to be an
important role for histori-
cal cost in the current model and believe that a high quality
accoimting standard appro-
priately distinguishes between circumstances in which
measurement at fair value or
historical cost should be required. It is insufficient, in our view,
to require measure-
ment at fair value simply "because we can." The following
examples may help illustrate
these views more clearly.
We agree that it makes sense to measure financial instruments
held in trading
portfolios at fair value and to recognize changes in their fair
values in earnings. The
fair-value measure is relevant in this circumstance because the
fundamental reason
the enterprise holds the portfolio is to maximize gains and
minimize losses in achieving

its targeted rate of return. Use of fair values internally by
management in assessing
performance provides further evidence that fair value is the only
relevant measure for
this kind of asset. In contrast, we do not find it at all helpful to
measure debt at fair
value in the financial statements of the issuer. Companies
generdly do not use fair
value information in managing their financial habilities and
imposing a requirement to
make such a determination would provide little incremental
benefit to the enterprise.
We believe that the fiuctuations that occur in the fair values of
debt obUgations are
meaningless since, in the vast majority of cases, they ultimately
will be settled at par
value. Furthermore, the inclusion of the issuer's own
creditworthiness into the valua-
tion only serves to compound the problem.
We believe that disclosure is the best place for information
about unrealized
fair values when realization is controlled by the reporting entity
and is unlikely to
occur in the near term. We believe that principle should be
followed in new stan-
dards unless and until financial statement users present
compelling reasons why it
makes sense to replace historical cost measures in financial
statements with fair
values.
3) Disclosures should be limited to those that contribute
significantly to
financial statement users' understanding of tbe enterprise's
financial

performance.
Standards should refiect an appropriate compromise between
users' desire for in-
formation and preparers' ability to satisfy that need— încluding
the cost of the effort to
produce the information and concerns about competitive harm.
We believe that the
standard-setting process historically has compromised heavily
in favor of perceptions
of user needs, almost to a fault. The basis for conclusions of
most standards treads
lightly on how these compromises are crafted; if they are
mentioned at all, the basis for
new disclosures is punctuated with phrases like "users stated
that [proposed disclo-
sure] would be useful." If one starts with the presumption that
just about any company-
specific disclosure can be found to be "useful" in some context,
it becomes clear that the
universe of possible new disclosures is indeed a target rich
environment.
180 Accounting Horizons / June 1998
We can identify several standards issued recently that illustrate
the consequences
of this phenomenon. For example, while all agree that it is
important to have more
information available about an enterprise's derivative activities,
how much informa-
tion is really needed? The collective impact of all of the new
disclosures called for by the
FASB and the SEC in its Derivatives Release are, in our view,

overkill. The eyes of all
but a handful of readers will glaze over as they struggle to
understand what it all means
and, worse, some constituents may actually draw the wrong
conclusions from what
they read. It seems that some disclosure requirements call for
giving to everyone who
might ever want to know virtually every bit of information
about an issue. We don't
subscribe to the "if a little is good, more must be better" theme.
We therefore believe that the disclosure segment of a new
standard needs a set of
baseline criteria to limit required disclosure to those that bear
directly on the invest-
ment decision. In our view, this is a much higher threshold than
"useful," and it carries
with it the responsibility to investigate the specific need that the
proposed information
will satisfy. Such an investigation should identify the activities
conducted by users that
involve the subject information, and those activities should
ultimately lead to a conclu-
sion that bears on the investment decision. If no specific uses or
activities can be iden-
tified, then the disclosure should not be required. Toward that
end, we have identified
two categories of disclosure that, in the majority of cases, we
believe will not result in
information that meets the Eiforementioned test.
Disclosure of Key Assumptions
In the context of analyzing the overall performance of an
enterprise, there are only
a handful of assumptions that are critical to the determination of

future earnings and
cash flow. If the company is doing a good job in its financial
reporting, these assump-
tions are discussed in Management's Discussion and Analysis.
Segmentation of Income Statement and Balance Sheet
Categories
Financial reporting already has a checklist of categories for
which separate disclo-
sure is required for both the income statement and the balance
sheet. Proposed disclo-
sures that segment this further at the transaction or activity
level are a venture into
minutia.
Even if the Board decides not to raise the bar higher in
considering proposed disclo-
sures, we believe that it would be helpful to preparers, and
would provide more disci-
pline to the decisions about such matters, if the basis for
conclusions of a new standard
had a more rigorous emd explicit consideration of the merits of
the required disclosures.
Too often it seems that consideration of new disclosures is more
of an afterthought.
PART 2: PROCESS
1) In the absence of compelling evidence of a pervasive
problem, new stan-
dards sbould be limited to areas for wbicb tbere are no existing
standards.
Changes in standards are usually very costly, both in terms of
management time

and attention, and in the resources necessary to understand and
implement them ap-
propriately. In the absence of standards in a particular area in
which critical issues
are emerging, the reasons for proposing a standard are often
much more evident. How-
ever, in circumstances for which standards have been in place
for a period of time and
nothing substantial has changed, effecting wholesale changes to
them is less easily
justified. Creating revised versions of existing standards raises
important and difficult
cost/benefit issues as the incremental benefit to financial
reporting is often elusive. In
our view, if the existing pronouncement works well and was
based upon well-reasoned
principles at the time promulgated, the Board should hold
constituent requests for
change to a much higher standard before undertsiking a project
to revise it.
2) The development of new standards sbould include rigorous
and fre-
quent participation by task forces and, wbere appropriate, be
subjected
to well designed and executed field tests before tbey are
finalized.
As discussed in the February 15,1996 letter from the IMA to the
Financial Accounting
Foundation, the IMA strongly supports greater involvement by

task force members in the
FASB process. We believe that the selection of task force
members should be based on
their famiharity with the issue at hand, as well as their ability
and willingness to attend
"drafting" meetings and Board meetings at each important stage
in the project. Task forces
should develop recommended solutions (recognizing, of course,
that only the Board can
promulgate standards). We believe that it is terribly inefficient
to expect dedicated staff to
develop expertise and understanding of complex markets and
transactions over a few
months or even years when many potential task force members
have spent careers devel-
oping those same skills. We believe that the Board must
aggressively seek task force mem-
bers with the core competencies, including users that have
direct experience analjraing the
subject matter under consideration, necessary for the task force
to provide the right infor-
mation. The Board should also resist the tendency to call the
SEune people to the table
simply because they are familiar to the Board and willing to
participate. Perhaps, the
FASB's Internet web site could be used to advertise open task
force positions and seek
information about the backgroimds and experience of
prospective members.
We also strongly support the use of field tests in circumstances
in which the standard's
requirements are likely to be very costly and time consvuning to
implement, and practica-
bility of application of certain requirements is debatable.
Oftentimes, the most efficient

and cost-effective way to approach development of field tests is
to outsource the develop-
ment and execution with appropriate oversight, to a
knowledgeable third party. Although
the FASB often has difficulty getting companies to volunteer to
field test new proposals, it
should, nonetheless, continue to seek reasonable levels of
participation.
3) Tbe development of new standards sbould include tbe
consideration of
accounting standards in otber countries and seek to leverage
opportuni-
ties for furthering international barmonization wbere it is
feasible
witbout compromising tbe quality of tbe U.S. standard.
The IMA recognizes that the globalization of the world's capital
markets has placed
enormous pressure on standard setters to narrow or eliminate
differences between na-
tional and international standards. We also recognize that there
may well be certain
matters where non-U.S. standard setters have guidance that is
superior to U.S. stan-
dards, and that future FASB standards will more often be
developed jointly or in coop-
eration with other national or international standard-setting
bodies. The IMA fully
supports those efforts and agrees with international
harmonization as an important
objective. That said, we do not support the "harmonization at all
costs" objective. We
beheve that the FASB must place the needs and concerns of its
U.S. constituents above
all others. There will sometimes be circumstances tmique to the

United States that
cause the accounting results of a particular principle to be
misleading or otherwise
inappropriate. Thus, if the Board is forced to choose between a
less-than-satisfactory
standard that is identical with other national and international
standards or develop-
ing the best possible U.S. standard, we clearly favor the latter.
4) Standards derived in response to new issues or events sbould
constitute
a measured response tbat rationally considers tbe importance
and
pervasiveness of tbe problem.
There is a natural tendency in standard setting to view
emerging, high profile ac-
counting issues as the single most important issue facing
investors at that point in
time. In some cases, the extent of the problem is limited to a
small group of companies
or a handful of isolated control failures. We believe that the
standard-setting process
needs to protect against standards that overcompensate for the
problem and impose
costs across the entire private sector.
A case in point is the collective reaction to losses related to
derivatives several years
ago. The regulatory reaction to those events resulted in
promulgation of FAS No. 119,

the SEC's release on quantitative measures of risk, and the
AICPA-sponsored project
on internal controls related to derivatives, as well as changes in
the direction and scope
of the FASB's hedging project. Many preparer-constituents
believe that the relative
risks of such instruments are not as significant as the resulting
accounting and disclo-
sure rules would indicate. Only a few companies were
mentioned in the financial press
as having big "surprises" over the past several years. Of those
financial institutions
that had large derivative losses, control and oversight were the
real issues. The vast
majority of companies have not had similar experiences. And
most of the nonbank losses
covered in the financial press several years ago were the result
of using a highly lever-
aged instrument, which, we understand, is no longer in use, at
least by most.
5) If appropriate, standards sbould provide for a sunset review
of all or a
portion of tbe proposed guidance at a futvire date.
We think of a sunset review concept primarily in the context of
disclosure require-
ments that were deemed useful at the date of issuance but have
not proven to be so in
practice. However, the Board may also find this concept
appropriate for accounting as
well.
6) Standard-setting projects sbould have realistic goals for
deliverables
and tbey sbould be completed on a timely basis.

This perhaps goes without saying. The longer a project drags
on, the more ingrained
practice becomes and the more difficult the adjustment to
implement a new approach.
CONCLUSION
We are encouraged by the proactive consideration of this issue
by the FASB. We
believe that the outcome of the discussion that will take place at
the Conference should
provide useful guidance about how the Board can make its
process more effective and
sharpen its focus on the attributes that make high quality
standards.
However, to be successful we believe that the FASB must
integrate content and pro-
cess improvements into its everyday activities and then
regularly measure the effect of
such improvements to determine progress. We therefore suggest
that the output or deliv-
erable from the discussions that took place at the Conference in
December ought to be a
set of parameters that all constituents believe are critical to
quality (CTQs). We would
then recommend that these CTQs be integrated into project
planning and evaluation.
One way in which this could be done is by incorporating a
feedback mechanism into

each proposal or other major activity. The mechanism can be as
simple as a short ques-
tionnaire that lists each of the CTQs and asks constituents to
provide feedback on their
perceptions; in fact, this questionnaire could be an interactive
form on the FASB's Internet
web site. We recommend that the Board solicit input in this
manner at key points dur-
ing its due process (staff drafts, preUminary views, exposure
drafts). This will provide a
means for the Board to obtain feedback on the extent to which
the desired characteris-
tics are present in a proposal.
Accounting Horizons
Vol. 12 No. 2
June 1998
pp.170-176
COMMENTARY
Peter H. Knutson and Gabrielle U. Napolitano
Peter H. Knutson is an Associate Professor Emeritus with the
Univer-
sity of Pennsylvania and Gabrielle U. Napolitano is a Vice
President
with Goldman, Sachs & Co. and is the Financial Accounting
Policy

Committee Chair.
Criteria Employed by the AiMR
Financiai Accounting Poiicy
Committee in Evaiuating
Financial Accounting Standards
OVERALL CONSIDERATIONS
The Financial Accoimting Policy Committee (FAPC) of the
Association for Invest-
ment Management and Research (AIMR) does not have its own
conceptual framework.
However, AIMR's 1993 Position Paper, Financial Reporting in
the 1990s and Beyond,
guides the Committee in its preparation of written commentary
on initiatives by regu-
lators and standards setters, such as the Financial Accounting
Standards Board (FASB),
the International Accoionting Standards Committee (IASC), the
United States Securi-
ties and Exchange Commission (SEC), and others. Financial
Reporting in the 1990s
and Beyond sets forth and explains the rationale underljdng the
bases of the FAPC's
conclusions and its ultimate recommendations of specific
models for corporate account-
ing practice and disclosure. Certain broad themes also prevail in
its internal discus-
sions and comment letters.
This is an excerpt from a longer report of the Financial
Accounting Policy Committee (FAPC) of the
Association for Investment Management and Research (AIMR),
prepared for the 1997 AAA/FASB Finan-

cial Reporting Issues Conference. AIMR is a global not-for-
profit membership organization with more
than 80,000 members and csindidates comprised of investment
analysts, portfolio managers and other
investment decision makers employed by investment
management firms, banks, broker-dealers, invest-
ment company complexes and insurance companies. The
Association's mission is to serve investors through
its membership by providing global leadership in education on
investment knowledge, sustaining high
standards of professional conduct, and administering the
Chartered Financial Analyst (CFA*) designa-
tion program. The Financial Accounting Policy Committee is a
standing committee of AIMR charged with
maintaining liaison with and responding to initiatives of bodies
which set financial accounting standards
and regulate financial statement disclosures. The FAPC also
maintains contact with professional, aca-
demic and other organizations interested in financial reporting.
Criteria Employed by the AIMR Financial Accounting Policy
Committee 171
"Bright Lines" vs. "Economic Substance"
The FAPC usually eschews so-called "bright lines." Such clear
delineations Invite
gaming of the accotmting standard. One does not have to read
the investments section
of many financial reports to discover how many 19.9 percent
and 20.1 percent equity
security ownerships exist. Even though there is no difference in
substance between
these ownership interests, the accounting differences are

immense. The FAPC gener-
ally prefers to have an accoimting standard address matters in
terms of their economic
substance.
A Single Measurement and Recognition Standard
Standard setters should mandate a single standard for
recognition and measure-
ment in the reporting model. A single standard enhances
comparability and improves
the reliability and relevance of the financial information
presented to users. Lack of a
specific measurement basis and presentation format
compromises the usefulness of the
information to the investment analysis and decision-making
process.
It is the need for that single recognition and measurement
standard that underlies
the FAPC's and the AIMR's strong support for the efforts of the
IASC and, to a lesser
extent, the "G4 -H 1."̂ The FAPC looks forward to the day
when there are no longer
significant differences among the accounting principles used
throughout the world. The
FAPC also believes there is no reason to have different
principles of measurement and
recognition for enterprises of different size, so-called "Big-
GAAP and Little-GAAP," al-
though some differences in disclosure may be warranted for
privately-owned enter-
prises. Finally, the same principles ought to apply to not-for-
profit as well as profit-
seeking entities. In many—but not all—cases, the measurement
and recognition stan-

dards used in the private sector should also apply to
governmental entities.
SUMMARY OF SPECIFIC CRITERIA
Those criteria the FAPC considers most critical to the
promulgation of high-quality
financial accounting standards are listed below. In the following
section, each is dis-
cussed in turn.
1) A new standard should improve the information that is
available to investment
decision makers.
2) The information that results from applying a new standard
should be relevant to
the investment evaluation process.
3) Certain financial information is better presented outside the
audited financial state-
ments, and should not be included in the scope of a financial
accounting standard.
should fit the double-
entry accounting model, or should enhance understanding of the
data contained in
the model.
5) Economic phenomena that are similar or equivalent should be
depicted as such
in financial statements. That depiction ought to conform to
underlying economic
reality.

6) Current values usually are more useful than historic amounts,
subject to reliability
of their measurement.
' The "G4+1" consists of the standard-setting hodies of the
United States, Canada, Australia and the United
Kingdom, plus the International Accounting Standards
Committee.
7) Extensive disclosures usually must be required as an integral
part of a new
accounting standard. They are necessary: (1) to overcome the
deficiencies of
the mixed-attribute accounting model; and (2) to help users
understand the
effects and implications of management's accounting choices.
Disclosures are
not, however, a substitute for measurement and recognition.
8) "Smoothing" and "normalization" is a function of emalysis,
not financial reporting.
CRITERIA FOR fflGH QUALITY STANDARDS DISCUSSED
1) A new standard should improve the information that is
available to investment de-
cision makers.
Beyond all else, financial analysis and investment evaluation
demands informa-
tion. AIMR members often are accused of wanting to know
everjrthing. In reality, that

is less of an onus than it is a compliment. Analysts are
"information junkies." How-
ever, assertions to the contrary notwithstanding, analysts are not
unreasonable in
their requests. (See points 2 and 3 below.) They realize that
sometimes it is costly to
produce new information and, therefore, the benefits should
exceed its cost. At the
same time, they have observed in the case of Statement of
Financial Accounting Stan-
dards No. 106, for example, that the cost of producing new
information may be ex-
ceeded by the twin benefits of better-informed management
actions and better-informed
capital markets.
The most useful and important accounting standards are those
that provide new
information that could not previously have been estimated by
outsiders. That, for in-
stance, is why a standard that establishes rigorous criteria for
reporting segment fi-
nancial information ranks first in importance with analysts, in
general, and the AIMR
and its Financisil Accounting Policy Committee, in psirticular.
Such a standard results
in financial market makers receiving information that simply
could not be obtained
otherwise.
A corollary to this criterion is that details are important.
Disaggregation and de-
composition of aggregate and summary data provide analysts
and other investment
professionals with extremely important data. Averages,
aggregates and offsets can be

misleading. It is the highs and lows, the blemishes and sore
spots, that reveal the pre-
cise nature of the risks and rewards embedded in a particular
investment opportunity.
On the other hand, the FAPC was not at the forefront of those
asking the Board to
set standards of measurement and recognition of the cost of
compensation from the use
of options on an enterprise's own stock. There were several
reasons. The one that ap-
plies here is that a new standard would not have created
significant new information.
Much of what the FASB's proposal sought to do was to report
information already avail-
able in other formats, such as the SEC's required disclosures in
proxy statements. The
majority of the FAPC supported the FASB's stock compensation
proposal because they
felt it was the right thing to do if something were to be done.
But, overall, it was not an
issue for analysts to "die for."
should be relevant to
the investment evaluation process.
First, there is little corporate financial information that is not
relevant to the in-
vestment process, but there is some. For example,FmaraciaZ
Reporting in the 1990s and
Beyond advocates the immediate write-off of goodwill. That is
because a number that
reports the amount of unamortized goodwill simply is irrelevant
to investment deci-
sions. Investors look for value in those assets that generate

expected future cash fiows.
Committee 173
Goodwill, by contrast, is an asset that itself is g^enerated by
expectations of future cash
flows. It produces nothing.
Most boilerplate included in corporate reports also is not useful.
The FASB's efforts
to improve disclosures relating to (1) pension and OPEB costs
and liabilities, and (2)
hedging and derivative positions and activities, are cases in
point. Investment deci-
sions rarely hinge on knowing that "the employer's pension
plans provide retirement
benefits to employees" or that an enterprise "regularly hedges
agsdnst unexpected
changes in commodity prices, interest rates, and foreign
currency exchange rates."
3) Certain financial information is better presented outside the
audited financial state-
ments and it should not be included in the scope of a financial
accounting standard.
Factual data are better than opinions and guesses, at least when
it comes to finan-
cial accounting and reporting. The FAPC has on several
occasions recommended that
information be provided in the Management Discussion and
Analysis (MD&A) section
of the financial report and not be included in the scope of a

proposed accounting stan-
dard. In many cases, it is important that financial statement
users know what
management's position is. That position can be presented more
candidly in the MD&A
than might be the case if it were subject to the codification of
£in accounting standeird
and the scrutiny of external auditors.
Therefore, the FAPC generally advocates limiting the scope of
accounting standard
setting. For example, although we enthusiastically supported the
activities of the AICPA's
Special Committee on Financial Reporting, we have disagreed
with those who believe
that the process of disseminating high-level operating data
should be incorporated into
the accounting standard-setting process.
should fit the double-
entry accounting model, or should enhance understanding of the
data contained by
the model.
It is axiomatic that information is important whether it is
recognized and measured
in the financial statements themselves or merely disclosed in the
notes or elsewhere.
Much academic research has found that this information
eventually is impoimded in
securities prices. Therefore, why should it matter whether the
data are in or out of the
financial statements? In a larger sense, one might question why
financial statements
are needed at all.

First, financial statements save their users from a financial
scavenger hunt. The
maxim that "even a blind pig roots out an acorn now and then"
can be turned around to
say that even the most astute professional user of financial
statements will occasionally
miss a datum artfully hidden among the voluminous disclosures
of a contemporary
financial report. Furthermore, not all users are "astute
professionals," and the markets
operate efficiently and fairly only when the same information is
available to all.
Second, investment professionals rank second only to
accoimting and finance aca-
demicians in their use of and reliance on databases for research.
In turn, among the
multitude of available financial databases, there is extraordinary
diversity in the msin-
ner and degree to which they modify raw data to make it
comparable across industries
and between companies. Thus, it is imperative that the financial
data included in finan-
cial statements be as inclusive as possible.
Third, there is the notion that "if you are going to do something,
you ought to do it
right." A balance sheet purports to list an enterprise's assets and
liabilities; an income
statement its revenues, expenses, gains and losses. Therefore,
there should be good

reason for omitting from those lists the accounting elements
essential to them, and
such omissions ought to occur only under exceptional
circumstances.
5) Economic phenomena that are similar or equivalent should be
depicted as such in
financial statements. That depiction ought to conform to
underlying economic reality.
This tenet embraces the FAPC's understanding of
representational faithfulness. Its
first manifestation is that recognition and measiirement
standards ought to shed light
on what is real, as well as portray the substance of exchanges
and other economic events
accurately and completely.
Its second aspect, which goes to the heart of analysis, is
comparability. Everything
is relative. For example, as stated above, the FAPC first began
to comment on IASC
initiatives when that body first acted to implement its mandate
to "harmonize" ac-
counting standards around the world. Even though International
Accoimting Standards
still permit a large number of alternative accounting practices,
they at least set out a
single benchmark standard and limit the acceptable alternatives
in each pronounce-
ment. One of the main themes of Financial Reporting in the
1990s and Beyond is the
globalization of commerce and the financial markets. The need
for comparable data to
support the efficiency of markets in the international arena is

immense. For that rea-
son, the FAPC has supported strongly the FASB's international
activities, including
past projects such as earnings per share, and current ones such
as business combina-
tions. Our hope and expectation is that, in its international
activities, we can look to the
FASB Eilso as a beacon and not a reflector.
6) Current valties usually are more useful than historic amounts,
subject to reliability
of their measurement.
When Financial Reporting in the 1990s and Beyond was
published, opinion within
the FAPC and the AIMR was divided about the usefulness of
fair value reporting for
financial instruments. Some, but not all, of the opposition was
solely on the grounds of
(lack of) reliable measurement of fair value. Recent FAPC
comment letters to the FASB
with respect to accounting for derivatives and hedging, and to
the IASC in response to
its Discussion Paper on financial instruments, reveal a strong,
but not unanimous,
movement within the committee to support fair value. We
beUeve that, among the larger
body of AIMR members, there has been a similar movement
toward acceptance of the
merits of fair value measurement and recognition for financial
instruments.
One of the reasons we advocate the immediate write-off of
goodwill is the fact that
its current value has little or no correspondence to the cost of
acquiring it. Similar

reasoning leads us to not want so-called "soft assets" placed on
the balance sheet except
when they are acquired in a purchase transaction. Even then,
they should be written
off or amortized quickly because their values change so quickly
and extensively.
In the absence of reliable measurement, the FAPC has
continually supported supple-
mental disclosure of current value data. We lament the
disappearance of FAS No. 33,
Financial Reporting and Changing Prices, that provided data
which many of us found
informative and useful despite their approximation. We attribute
FAS No. 33's lack of
acceptEince and infiuence to the disappearance of high rates of
inflation and the fact
that many people considered it either too complex or else an
imperfect vehicle for mea-
suring the effects of infiation.
7) Extensive disclosures usually must be required as an integral
part of a new
accounting standard. They are necessary: (1) to overcome the
deficiencies of the
mixed-attribute accounting model; and (2) to help users
understand the effects
Committee 175
and implications of management's accounting choices.
Disclosures are not, how-
ever, a substitute for measurement and recognition.

In most FAPC comment letters, there is substantial emphasis put
on disclosures.
No matter how assiduously careful the FASB is to incorporate
appropriate measure-
ment and recognition, most new standards require financial
statements to include ad-
ditional information and explanations to make the new
accounting understandable and
complete. As time goes on and the Board considers topics
requiring more and more
complex accounting, the need for supplemental disclosure
increases.
We are fated always to have a mixed-attribute accounting
model. In concept, that
could be avoided, but to do so would involve going to extremes.
One extreme would be to
count oiiiy past cash fiows; that is, to adopt cash-basis
accounting. The other would be
to count only future cash fiows; that is, to adopt economic
income.̂ The first alternative
would deny the value of accrual accounting; the second would
substitute analysis for
accounting. The two extremes are neither useful nor practicable.
Therefore, the system
will always fall short of perfection and there will always be a
corresponding need for
supplementary informative disclosures, particularly to explain
and amplify the intersec-
tions where historic and current values meet. The disclosures
should shed light on trans-
actions and events with implications for an enterprise's future
cash fiows.
In a more practical vein, without extensive disclosures, analysts

and other financial
statement users would be unable to make sensible compEirisons
and evaluations. Ana-
lysts need to know not only the accounting method(s) chosen by
management, but also
the amounts and timing of its impacts on the financial
statements. Accounting esti-
mates, and their effects, also need to be disclosed. Such
disclosure takes on added ur-
gency and importance with the trend of new accounting
standards to employ fewer
"bright line" measurements and to place greater emphasis on
economic substance.
8) "Smoothing" and "normalization" is a function of analysis,
not financial reporting.
The AICPA Special Committee on Financial Reporting heard
financial statement
users say that one of their paramount activities is to seek out an
enterprise's "core
earnings." That search is at the heart of analysis. For its part,
the Special Committee
felt that accountants could divine core earnings and report them
to analysts. Unfortu-
nately, it is not that easy. In reality, core earnings is not a
fact—it is an opinion. Ana-
lysts believe determining core earnings is one of the ways they
add value to the process
of financial analysis. (See point 3 above.)
In the second edition of their textbook. The Analysis and Use of
Financial State-
ments, FAPC members Gerald I. White and Ashwinpaul C.
Sondhi (and their coauthor,
H. Dov Fried) discuss the analysis of restructuring. The

anals^tical problem is to sepa-
rate from the current period's income calculation those items,
primarily costs, that be-
long to other periods. Some of them are costs of the past
resulting fi-om underdepreciation,
underamortization, underaccrual or excessive deferral. Others
are costs of the future
which management finds expedient to treat as current expenses,
thus enhancing fii-
ture results and double-enhancing future rates of return. Sorting
out those effects is
"Economic income" would have net assets stated at the present
value of future expected cash flows. Chsinges
in net assets so-measured, other than transactions with owners,
would be income. Income would be an
amalgamation of the rate of interest applied to beginning net
assets, plus or minus the capital value of
revisions in estimates of future cash flows, variances between
expected and actual cash flows for the
period, and the effect of changes in interest rates. It is similar
to the measurement of income for oil and
gas producing enterprises under reserve-recognition accounting,
or the determination of periodic pension
cost if the FAS No. 87 smoothing apparatus were removed.
the business of analysis. But it cannot be done without
substantial detailed accounting
information of a factual nature. White et al. do an excellent job
of drawing the line
between the nature of analysis and the need for accounting
disclosures.

The FAPC is aware that some "smoothing devices" will be
found in accounting stan-
dards. Politically, certain standards could not be promulgated
without them. That is
why the FAPC has supported the concept of comprehensive
income. It is the basis for
our support of the extensive disclosures that accompany
Statements of Financial Ac-
counting Standards Nos. 87 and 106. As the legendary Detective
Joe Friday used to say
on the television program "Dragnet," "Just [give us] the facts,
ma'am." The imphcation
is that we'll do the analysis ourselves. But, remember, we need
all the facts, not just
those selected to meet some other objective.
CONCLUSION
FAPC meetings leave certain impressions. One is the frequency
with which the
phrase, "There shouldn't be free choice there," is heard.
Financial analysts and invest-
ment managers do not like surprises, and they like being fooled
even less. Accounting
rules ought to be clear and they should produce the same results
for the same economic
transactions across a broad spectrum of events. In other words,
all reporting entities
ought to adhere to the same model.

Accounting Horizons
Vol, 12 No, 2
June 1998
pp,163-169
COMMENTARY
John I Smith
John T. Smith is a Partner at Deloitte & Touche LLP.
Responding to FASB
Standard-Setting Proposals
INTRODUCTION
We develop our responses to Financial Accounting Standards
Board (FASB) stan-
dard-setting proposals by obtaining input from a number of
partners; primarily from
the technical group in the National Office, but also from client
service partners in the
field—particularly specialists in the area under consideration.
We generally do not at-
tempt to explore broad alternatives, unless we disagree
conceptually with the proposal
or have significant reservations about its operational aspects.
Due to the diverse back-
grounds and perspectives of the participants in the input
process, our initial views fre-
quently are not uniform. Differences in views are debated with
the goal of arriving at
what we consider to be the most appropriate response. In
developing our response, we

consider the extent to which the proposal will change practice
and the implications of
that change.
We have attempted to improve our process of assessing
standard-setting initiatives
by identifying a number of broad fundamental areas for
consideration and establishing
evaluation criteria for these areas. We recognize that it is not
possible to develop an
approach that could be used to fully and objectively assess the
merits of a proposed
standard. However, we believe the use of a methodology that
focuses on certain funda-
mental aspects of any standard-setting proposal may improve
the process. The purpose
is to produce a more organized, uniform and consistent
approach to evaluate proposals
and to provide a foundation to test and validate the rationale for
our conclusions and
recommendations. The approach that we have started to use, and
are continuing to
develop, focuses on three fundamental aspects inherent in any
standard: economics of
transactions; concepts used to portray the economics; and rules
used to make concepts
operational.
Understanding the economics of transactions contemplated by a
proposed standard
is an essential part of the analysis process. Determining whether
there are competing
economic views of these transactions is psirticularly important
in evaluating the con-
cepts that are selected to portray the transactions and the
usefulness of the information

to be reported in financial statements. Ideally, the concepts
selected should be based on
economic logic, portray the most pervasive view of the
economics, and be applied com-
prehensively. Evaluating the rules used to make concepts
operational and limit alter-
natives also is an important part of the process. Ultimately,
support for a proposed
standard becomes a judgment that broadly considers whether the
proposed standard
provides information that is useful, improves practice, and is
operational. The rationale
for these considerations is described more fully below.
THE OBJECTIVE OF FINANCIAL STATEMENTS
FASB Concept Statement No. 1, Objectives of Financial
Reporting by Business
Enterprises, provides the basis for assessing standsird-setting
initiatives. It states: "Fi-
nancial reporting should provide information that is useful to
present and potential
investors and creditors and other users in making rational
investment, credit, and
similar decisions." The recommendations of the AICPA Special
Committee on Finan-
cial Reporting also focus on the needs of users to value and
assess the risks of their
investments.
The message is clear—the objective of financial reporting is to

provide information
that is useful for making decisions. However, there are a
number obstacles that make it
difficult to determine whether this fundamental objective is
being met and can be fully
achieved.
SERVING THE NEEDS OF USERS
Based on the FASB objectives, it is clear that the overriding
consideration in the
development of standards (and in any response to a standard-
setting initiative) should
be to ensure that standard-setting proposals will provide more
useful information to
users of financial statements. If the needs of users were fully
understood, evaluating
standard-setting proposals would be easy. It is difficult,
however, to determine what
their needs are and whether the objective is being satisfied. In
addition, it is impossible
to determine how useful the messages conveyed in financial
statements are, or will be,
to the users of financial statements, as a result of stsmdard-
setting proposals.
The objectives in the FASB Concept Statements are directed
toward the common
interests of many users. However, users will understand and
interpret information
differently. They have different levels of sophistication and
knowledge, different cash
fiow needs, and employ different trading and investment
strategies. They may inter-
pret the same information differently, or focus on different
information and assign greater

significance to certain information and less significance to other
information. Perhaps,
information that is important to some users is not important to
others. The Association
for Investment Management and Research's Position Paper,
Financial Reporting in the
1990s and Beyond, recognizes the difficulty of identifying user
needs. It cites the mini-
mal amount of empirical research about users' needs, and
observes that much of what
is written merely speculates about what would or would not be
useful to users.
In the absence of obtaining an understanding of user needs
directly from users,
judgments can be made about the qualities that are necessary to
fulfill the objectives by
focusing on some of the guidance in the FASB Concept
Statements. The Concept State-
ments indicate that relevance and reliability are the two primary
qualities that make
accounting information useful for decision making relevant, in
that it is timely and has
predictive value; reliable, in that it has representational
faithfulness, is verifiable and
neutral. These conditions are subject to cost-justification and
materiality considerations.
The qualities necessary to making accounting information
useful also require a
need to portray economic reality. A more direct focus on
economics is contained in
Concept Statement No. 1, which specifies that the information
provided in financial
reporting should be comprehensible, and should help in
assessing cash flows, economic

Responding to FASB Standard-Setting Proposals 165
resources and obligations, as well as owner's equity and
financial performance during
a period. To be meaningful, standards should provide
information that makes transac-
tions, rights and obligations understandable. Understanding is
facilitated if the infor-
mation depicts economic reaUty, discloses critical activities,
and conveys standardized
information in a clear and unambiguous way. The key emphasis,
however, should be
on economic reality.
EVALUATING STANDARD SETTING PROPOSALS
Assessing the Economics
Develop an understanding of the economics of transactions
contemplated by the pro-
posed standard and determine the extent to which there are
competing economic vietvs.
Determine whether there is a prevailing view of the economics
and whether the proposed
standard accurately depicts that view.
The most important factor to consider in deciding whether
financial information is
decision-useful is the extent to which it reliably depicts the
economics of transactions.
It is understood that financial accounting is not designed to
measure directly the eco-
nomic value of a business, so the accounting and the economics
will not necessarily

follow each other.
However, financial accounting is intended to provide
information that is useful to
those who desire to make their own estimates of the enterprise's
value. When the ac-
counting depicts the economics, the results of transactions have
meaning and generally
can be understood. The reverse is true if the accounting does
not depict the economics.
If the economics of transactions are faithfully represented and
presented, users then
can decide the extent to which certain economic events affect
their decisions. The AIMR's
Position Paper, Financial Reporting in the 1990s and Beyond,
states "analysts need to
know economic reality—what is really going on—to the greatest
extent it can be de-
picted by accounting numbers."
The portrayal of economic reality is an important objective, but
it is an ideal
that is not fully achievable. Just as users do not evaluate the
usefulness of infor-
mation in the same way, in many instances, there are different
views about the
substance and economics of transactions. For example, when an
entity makes a
loan to another entity, the economics are clear—one party has
an asset, a receiv-
able; the other, a liability to repay the loan. However, if the
party making the loan
transfers a portion of it to another party and guarantees
performance of the bor-
rower, the economics are not clear. Some may view the second
transaction eco-

nomically as a sale, while others may view it as borrowing.
Sometimes the econom-
ics cannot be fully assessed; for example, when the outcome is
dependent on uncer-
tain future events.
Providing Comparability
Determine that the use of concepts and rules in the proposed
standard narrows al-
ternative accounting choices and improves comparability.
When there is general agreement about the economics of
transactions, broad ac-
counting guidance consistent with the economics is usually
sufficient to ensure compa-
rability of reporting. Detailed or rigid accounting guidance is
generally not necessary to
reduce accovmting alternatives because there is a tendency to
challenge any accounting
result that does not accurately depict the economics. When there
are different views
about the economics of transactions, there is a greater need for
focused accounting
guidance. There also will be a tendency to find a way to
interpret any accounting guid-
ance provided in the standards to accommodate the perceived
view of the economics.
An ability to choose from dtemative accounting treatments,
based on individual

perceptions of the economics, would permit like transactions to
be portrayed differently
in financial statements, which is undesirable because it reduces
comparability and is
likely to confuse users of financial statements. The use of a
concept or a rule to limit the
alternatives ensvu-es that like transactions will be accounted for
the same way and that
standardized accounting for such transactions will increase
understanding and compa-
rability and avoid confusion.
Balancing Concepts and Rules
Determine whether the proposed standard is primarily concept-
based or rule-based.
Assess the appropriateness of the balance between the use of
concepts and rules used to
provide guidance.
Concept-based standards are considered to be superior to rule-
based standards.
The accounting result from appl3dng a concept is usually more
understandable and
transparent than the result of applying a rule. Rules generally
are more arbitrary, and
the results of their application require more interpretation than
concepts. A concept
may be considered to be arbitrary when it is selected to depict
one of the competing
views of the economics, but the underlying economic rationale
enables a concept to
accommodate a wide variety of transactions and produce
consistent and reliable ac-
counting results. The applicability of concepts to a wide variety
of transactions enables

them to be used over long periods of time without requiring the
standard to be changed
to accommodate new transactions, or variations of transactions,
not initially compre-
hended in the development of the standard. A low-maintenance
standard provides greater
comparability because it does not require continuous updating
for interpretations, and
for new transactions not comprehended by the initial guidance.
Standards that are concept-based are not as susceptible to
manipulation and abuse
as standards that are rule-based. Although conceptual guidance
requires judgment in
applying the concept that, in turn, provides the potential for
misapplication, the eco-
nomic rationale embraced by the concept serves to limit the
extent to which it can be
misapplied. Rules preclude the use of judgment, and thereby
reduce the possibihty for
misapplication. However, they have the potential to be abused
through careful struc-
turing of transactions to take advantage of the rule.
Although guidance based on a concept is generally preferred,
such guidance by itself
would rarely be sufficient to ensure a consistent application of a
standard. Rules are neces-
sary to make concepts operational. Sometimes it is not to
possible to identify a strong
pervasive concept that can be applied to a variety of
transactions. In these situations,
greater reliance has to be placed on rules to limit alternatives
and to provide comparability
of results. There is no objective way to determine when a rule
should be used in place of a

concept. Judgment is required to assess the appropriateness of
the balance, recognizing
that there is a continuum with concepts at one end and rules at
the other that, near the
extremes, are both inappropriate. Accounting guidance has to be
provided using both con-
cepts and rules. The appropriateness of the balance between the
concepts being employed
and the rules needed to implement the concepts is often difficult
to assess objectively.
Selecting a Concept
Obtain an understanding of the concepts being adopted in the
proposed standard,
and determine whether they are explicitly identified and
explained therein. Assess the
appropriateness of the concepts being adopted. Determine
whether the accounting result
from applying the concept can be explained easily and
understood in terms of the eco-
nomic view being selected. Consider the alternative competing
economic views, and
whether the concept selected to depict a particular view is
considered superior to the
other alternatives.
A concept is often adopted in a standard to serve as a basis for
depicting transac-
tions under the scope of the proposal. It is also used to decrease
the confusion that may

result from allowing the accoxmting to be based on a selection
of any of the competing
economic views. When economics are not clear, a concept
should be chosen to represent
one of the competing economics views and, if determinable, the
one considered to be the
most appropriate in the circumstances.
For example, the concept of control is used in SFAS No. 125,
Accounting for Trans-
fers and Servicing of Financial Assets and Extinguishments of
Liabilities, as the basis
of determining whether a sale or financing has occurred. A
risks-and-rewards approach
had been used previously, but it was considered by some as not
being operational be-
cause it provided for considerable free choice. When a concept
is used, it should form
the basis for explaining the accounting result and making it
understandable. A concept
should bring logic and order to transactions. And it should make
sense on its own with-
out the need for detailed interpretation. It should produce a
result that is explainable
and understandable in terms of the economic view being
adopted.
Articulate the Concept. The concepts being adopted can best be
understood if
they are explicitly identified in the proposed standard. If the
concept is not clearly
established as the foundation for the standard, the rules
specified in the standard used
to implement the concept tend to be viewed more as arbitrary
requirements instead of
applications of the concept. In these cases, structuring around

the rules used to make
the concept operational may be considered appropriate to attain
a desired alternative
accounting result. When a concept is clearly specified, it is
more difficult to circumvent
it by evaluating the strict compliance with rules. Compliance is
assessed more auto-
matically and appropriately against the concept and spirit of the
stemdard, not to the
rules used to make the concept operational.
Link the Concept to the Economics. The economic basis for
selecting a concept
should also be clearly and formally specified in the proposed
standard for every concept
that is adopted. Concepts should logically follow an economic
framework and be consis-
tent with market reality of the applicable transactions. The
economic rationale should
be explained and justified to reduce any confusion that may
otherwise exist. If the
concept is confusing, or produces confusing results, there will
be a tendency to find
alternative accounting solutions that make better sense and can
be explained. As a
result, there will be a significant dependence on detailed rules
to reduce diversity from
the potential misapplication of the concept. A concept would be
considered inappropri-
ate if it produces a convoluted, meaningless or an unintelligible
depiction of economics
or is a clear compromise of the economics. If a concept is not
clearly linked to the eco-
nomics, it is not likely to be operational because its
implementation will rely on judg-
ments that are too subjective.

Select the Superior Alternative. Just as competing economic
views should be
identified, competing concepts also should be identified to
determine whether the con-
cept selected is superior to the others. Generally, the concept
selected should portray
the prevailing economic view, if it is determinable. A concept
may be considered
appropriate if it can provide a more precise or reasonable
depiction of an economic
perspective, or a more understandable economic result than
other concepts. A concept
also may be considered appropriate if it can be made
operational with much less diffi-
culty than other concepts.
If the concept selected is not generally considered superior to
other competing con-
cepts, or if it is not founded clearly in an economic perspective,
it may be viewed as
being adopted arbitrarily, solely as a basis for eliminating
diversity. In this instance,
the concept loses some of its effectiveness, and is viewed and
applied more like a rule
that is selected arbitrarily.
Ensure Comparability and Consistency. Concepts should be
capable of being
applied comprehensively and consistently to a multitude of
transactions. If there are

exceptions in the application of the concept—for example, to
accommodate a particular
practice for certain transactions—the concept loses some of its
effectiveness because
there will be analogy to the exempted transactions to achieve an
alternative accovmting
treatment. The concept also should be consistent with other
accounting literature. If it
confiicts, it will create confusion, because similar transactions
may be analogized to the
conflicting literature to achieve a different accounting result.
Sometimes, however, it
may be necessary to permit a conffict with other accounting
literature, when a new
concept is being applied to certain transactions, but the concept
is not developed fully
enough to be applied on a wholesale basis. In these
circumstances, the standard should
clearly specify that analogy to other literature is inappropriate.
Specifying Rules
Rules are used to supplement concepts. They should provide
sufficient guidance to
make the concepts operational, but they should not be
excessive. A concept clearly founded
in economic rationale reduces the need for rules. Guidance in
the form of rules should be
developed in the proposed standard by reference to the concepts
being used to provide
meaning to the rules. Rules also are used to limit alternatives
and provide comparabil-
ity. If rules must be established arbitrarily to reduce
alternatives, they should be simple
to understand and apply.

Rules are needed to make concepts operational. When a
standard is based on a
clear concept, it can be made operational with few rules. The
unnecessary use of rules,
or the use of rules that are not clearly linked with concepts,
tends to diminish the
concepts being used, making them less effective and more
difficult to understand. When
rules overshadow the concept that was developed, or are used as
a basis for the account-
ing, they weaken the effectiveness of the standard because it is
perceived as being arbi-
trary or form driven. For example, as discussed previously,
SFAS No. 125 is based on a
concept of control. However, there are a number of rules used to
make the concept
operational to determine whether a transfer of control has
occurred, and the rules are
written primarily from the perspective of the transferee, not the
transferor. Some prac-
titioners primarily look to the form or rule as the prevailing
guidance without consider-
ing the concept, which leads them to conclude that a sale has
occurred if a transferor
gives up legal control—even if economic control is retained, as
in the case of a deep in-
the-money "put" held by the transferee. For this reason, it is
important to ensure that
the concepts are being emphasized so that they are not being
obscured by the rules.
Rules also are used to provide a uniform basis of accounting
when there is no clear
concept that can be applied, and when concepts are not
sufficient or fully developed.
Rules increase comparability by limiting accounting

alternatives. However, the use of
rules that are not linked to concepts is not desirable because
rules are often considered
to be arbitrary, and they are criticized for producing statistics
and conformity without a
purpose, with illogical economics and irrelevant results. The
use of arbitrary rules is
also criticized because such rules can be interpreted rigidly and
applied literally, which
permits abuse. Arbitrary rules provide considerable freedom in
which to interpret situ-
ations not specifically covered by the rules.
When it is necessary to use a rule to limit accounting
alternatives, and the rule
cannot be linked with a concept, it is often very difficult to
ensure that it will be effec-
tive in accomplishing its intended purpose and cannot be
abused. However, a number of
factors can ensure that a rule is operational and effective. The
rule should be clearly
articulated, easy to understand and easy to implement. If
instructions are too vague,
the rule can be misapplied or applied on a basis inconsistent
with the intent of the
standard. In addition, the rule should be practical and cost-
beneficial. It should not be
over-engineered for the problem or contain too many arbitrary
"bright" lines. And it
should not require a high cost of compliance. A rule that is
clearly arbitrary or a com-

promise should be simple. There generally is no valid reason to
complicate such a rule,
unless it is necessary to prevent manipulation and abuse through
selective application
or avoidance, structuring and inappropriate analogies.
Rules should not confiict with concepts or other rules. They
should be internally
consistent. Confiicts in a stsuidard permit different results to be
obtained depending on
which part of the standard is being referenced. This tends to
undermine the concepts
being used.
Accounting Horizons
Vol. 12 No. 2
June 1998
pp. 161-162
American Accounting Association's
Financiai Accounting Standards
Committee
Thomas J. Linsmeier, Chair; James R. Boatsman;
Robert H. Herz; Ross G. Jennings; Gregory J. Jonas;
iViark iH. Lang; Kathy R. Petroni; D. Shores; James
iVi.Wahien

Criteria for Assessing the Quaiity of
an Accounting Standard
Overall Decision Criterion
A high quaUty accounting standard improves financial reporting
by enhancing fi-
nancial statement users' abilities to make investment and credit
decisions.
Basic Issues
In implementing this criterion to evaluate proposed accounting
standards, we con-
sider the following issues.
1. Does the proposed accounting standard address a deficiency
in the financial report-
ing model? We believe high quality accounting standards should
promptly address
significant deficiencies in the financial reporting model.
Deficiencies in the report-
ing model can arise, for example, from significant changes in
methods of doing busi-
ness (e.g., using derivatives to manage market risks) and
significant changes in the
economic environment (e.g., growth in the service sector of the
economy). The fi-
nancial reporting model should refiect the economic effects of
such changes on a
timely basis. More generally, we believe the financial reporting
model should be
modified in a timely manner whenever current reporting
standards are found inad-
equate for investment and credit decisions.

2. Does the proposed accounting standard correct the perceived
deficiency in financial
reporting by improving financial statement users' abilities to
mxike investment and
credit decisions? We believe a high quality accounting standard
will improve
financial statement users' abilities to make investment and
credit decisions if,
in part, it improves the overall relevance, reliability and
comparability (includ-
ing the international comparability) of reported information. In
markets that
are imperfect or incomplete, investors and creditors require
measures (or esti-
mates) of firms' economic activities and events. In such
markets, choices among
The principal author is Thomas J. Linsmeier.
•'•̂ ^ Accounting Horizons / June 1998
alternative measurements provided by financial accounting
systems often involve
a trade-off between relevance, reliability and comparability. A
high quality ac-
counting standard makes these trade-offs by providing guidance
that maximizes
the informativeness of financial reporting information.
3. Do expected benefits from issuing the proposed standard
exceed expected costs? We
believe a high quality accounting standard should improve
capitaJ allocation deci-
sions sufficiently so that benefits of the new standard exceed

costs. Capital alloca-
tion decisions improve significantly when new accounting
information leads to de-
creased information risk and costs of capital, producing
increased economic output
and efficiency. A good accounting standard will enable decision
makers to assess
more accurately the economic health and performance of firms.
As a result, decision
makers will perceive some firms to be economically stronger
and others to be eco-
nomically weaker. These economic consequences of the
accoimting change are the
mechanism by which new accounting standards improve capital
allocation deci-
sions and, thus, should support rather than prevent issuance of
the standard. Other
costs associated with implementing a new standard (e.g.,
preparation, proprietary
and potential litigation costs) also should not prevent issuance
of the standard, as
long as the expected benefits derived fi-om improved capital
allocation decisions
exceed these costs.
Evaluation Criteria
In evaluating each of the three basic issues described above, we
primarily consider
whether the proposed accounting standard is consistent with
both academic research
and the FASB's "Conceptual Framework" underlying financial
reporting.
1. When academic research is relevant, we believe a high
quality standard should be

informed by and consistent with the results of such research.
Research can be rel-
evant to the standard-setting process when it provides models,
theories and/or em-
pirical evidence, which explore the relation between accounting
information and
various economic metrics (e.g., stock prices, stock returns, bid-
ask spreads, cost of
capital, market risk, credit risk, solvency, etc.). Research has
the potential to in-
form standard-setting decisions by both suggesting economic
factors and providing
empirical evidence directly relevant to assessing whether a
proposed accounting
standard (1) addresses a deficiency in the financial reporting
model, (2) improves
financial statement users' abilities to make investment and
credit decisions, and (3)
has economic benefits exceeding economic costs.
2. We believe a high quality standard should be consistent with
the FASB's "Concep-
tual Framework" because we believe standards based on
internally consistent rea-
soning are most likely to improve financial statement users'
abilities to make in-
vestment and credit decisions. The "Conceptual Framework"
provides the FASB
with a common foundation and basic reasoning on which to
develop proposed ac-
counting standards. As such, determining whether the proposed
accounting stan-
dard is consistent with the "Conceptual Framework" allows us
to (1) understand
the basis for the Board's conclusions, (2) examine potential
strengths £ind weak-

nesses in the reasoning behind the proposed standard, and (3)
identify inconsisten-
cies between the proposed standard and other standards which
define the current
reporting model.
Accounting Horizons
Vol. 12 No. 2
June 1998
pp. 160
Six Commentaries on
Accounting Standards
Eugene A. Imhoff, Jr.
Eugene A. Imhoff, Jr. is a Professor at the University of
Michigan
and Editor o/" Accounting Horizons.
In the March 1998 issue of Accounting Horizons, we published
a commentary by
Arthvu- Levitt, Chairman ofthe U.S. Securities and Exchange
Commission, regarding
the importance of high quality accounting standards. In this
issue, we provide six com-
mentaries that address the question: What are the attributes of
high quality accounting

© 1998 American Accounting AssociationAccounting HorizonsV.docx

Recommended

Recommended

More Related Content

Similar to © 1998 American Accounting AssociationAccounting HorizonsV.docx

Similar to © 1998 American Accounting AssociationAccounting HorizonsV.docx (20)

More from gerardkortney

More from gerardkortney (20)

Recently uploaded

Recently uploaded (20)

© 1998 American Accounting AssociationAccounting HorizonsV.docx