Criteria for Choosing an Accounting Model

Seven criteria that an accounting model should satisfy if it is to be preferred over competing models are formulated. The criteria are virtually axiomatic, and it is shown that the present body of generally accepted accounting principles fails to meet any of them. The criteria point, in fact, to the...

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Bibliographic Details
Published in:Accounting horizons 1995-03, Vol.9 (1), p.42
Main Author: Solomons, David
Format: Article
Language:English
Subjects:
Accounting policies
Accounting procedures
Balance sheets
Cash flow statements
Committees
Costs
Criteria
Decision making
Depreciable assets
Equity
Financial reporting
Financial statements
Historical cost accounting
Matching concept
Oil fields
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Summary:Seven criteria that an accounting model should satisfy if it is to be preferred over competing models are formulated. The criteria are virtually axiomatic, and it is shown that the present body of generally accepted accounting principles fails to meet any of them. The criteria point, in fact, to the choice of an accounting model based not on historical cost but on value to the business - i.e. deprival value. Also discussed is the debate between proponents of matching costs and revenues as the basis of income measurement and those who think that income should be measured by measuring changes in net worth, thus giving conceptual primacy to the balance sheet and changes in it. The superiority of the balance sheet approach is demonstrated. Contrary to what has been argued in the literature, it is shown how the liability for and the expensing of abandonment costs, which will be incurred at the termination of a project such as the exploitation of a natural resource like an oil field, can be accounted for more elegantly by means of a balance sheet approach than by a matching approach.
ISSN:0888-7993
1558-7975