Controversial navel-gazing

This may surprise readers who do not qualify as accounting anoraks, but
controversy still rages among the accounting cognoscenti as to the purpose of

The flames have been further fanned in a recent discussion document. This is
an exercise in advanced navel-gazing, but still underlines a genuine divide in
the profession.

In the traditionalists’ corner are the ‘stewardship’ protagonists. These
people believe that accounts are fundamentally a record of what has happened.
For them, the focus of accounts is on translating economic activity for a given
period of time into a readily intelligible, ‘true and fair’ quantitative record,
in the currency of the jurisdiction in which the entity is headquartered.

The principal purpose of financial records is to call to account management
for the stewardship of the entity by those who have a legitimate interest – the

In the opposite corner, the ‘modernists’ comprise a growing and very powerful
force in the narrow world of accountancy regulation. Their view is that accounts
are a tool for decision-making. They seek to place much greater demands on
accounts, which they believe should provide a reliable indication of the future
prospects for the entity in question, not only for existing, but also
prospective, stakeholders.

The modernist lobby has, argue the traditionalists, imposed huge demands on
the preparers of accounts, injected a level of unhelpful sophistication, opened
the floodgates to subjectivity and rendered accounts virtually unintelligible,
even to well-informed observers.

The complexity of accounts is being exacerbated by the movement towards
global convergence of accounting standards. Major strides have been made by the
IASB, with countries in the EU and around the world signed up to adopt
international financial reporting standards.

We recognise the value of accounts to decision-makers, but worry about the
consequences of over-elaboration on intelligibility and reliability. We are
concerned that standard-setters may be placing undue emphasis on the value of
accounts as input into decision-making, rather than their integrity and

We favour global convergence, but are alarmed by the potential demands on
small- and medium-sized enterprises of having to adopt complex and costly
requirements designed for large listed companies.

Fresh thinking is required and we welcome the move to review and consult upon
the conceptual framework for accounts so that these questions can be addressed.

Richard Aitken-Davies is vice president of ACCA

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