Revisiting the Role of the Future in Accounting Reform


Overlooked in accounting-reform debate emanating from recent financial reporting scandals is the role of forward-looking disclosure inaugurated in the late 1970s and expanded throughout the 1980s and 1990s. Debate centered on whether accounting concepts developed during this period were too rule-bound. An SEC study largely resolved this debate by characterizing US GAAP as a mix of rules and principles embedded in an objectives-based accounting system. The SEC expressed a slight preference for principles over rules in future accounting standard-setting. Some see this resolution as transformative. This Article considers how it may disguise a false dichotomy likely providing false catharsis. Underappreciated are the terms of a debate intense in the 1960s and 1970s but quiescent amid modernity?s preoccupation with the future: the reliability of forward-looking disclosure. This Article revisits that debate and the regime?s contributions to financial-fraud risk, showing how contemporary accounting?s role has been recast from providing credible numerical history to quixotic narrative prognosis due to pressures from the information age, digitization era and modern finance theory. It is too late and unrealistic to repeal forward-looking disclosure, but short-sighted to overlook its contributions to systemic financial-misstatement risk.


Accounting Law | Securities Law

Date of this Version

July 2004