Time is something accountants should respect: we don’t at our peril

Posted on

I found an article I wrote for Accountancy Age in 1997 yesterday. I was a columnist for them at the time (this writing lark goes back a long way). Of course times have changed since 1997, but this article was about a principle, and my view on that principle has not changed, so I think it worth giving the article another outing here with only very minor edits applied, and a new conclusion:


The Accounting Standard Board's Statement of Principles and two recent exposure drafts - FRED 14 (on accounting for provision and contingencies) and 15 (on impairment of fixed assets and goodwill) - play a very dangerous game: they alter the accountant's perception of time.

If you have never done this before, stop for a moment to think about what time really means for an accountant. The passage of time is at the very core of our profession. We measure income over periods of time. We account for net worth at a point in time. We account for tax over time periods defined by legislation. Without the passage of time we would have no purpose.

Of course, we are not alone in our preoccupation with time. Physicists challenge our perceptions of what time means and how we can relate to it, making us realise that time is not the absolute it once was. But the accountant's view of time is different, and unique in the field of economic activity.

Our approach to time differentiates us from economists. When push comes to shove, only one period of time interests economists. That is today. The past does not count to economists except to define the resources available at this moment. The future is discounted by them, except for the change in perception it can provide at the moment. Today is what counts in their world view.

That's a pretty weird view of life and one that has caused untold damage to economies all over the world by promoting the disease known as short-termism.

I had always thought that accountants weren't subject to this particular complaint. Now it seems the ASB is determined that we shall be.I think that in doing so it seriously misunderstands the profession. Its approach risks debasing our special contribution to objectivity in financial reporting because the Statement of Principles, FREDs 14 and 15, and no doubt other statements still to come, substantially advance the cause of incorporating the discounted future value of cash flows into accounting statements.

This concept is, however, completely contrary to our understanding as accountants. We recognise the past. It is not without reason that we have retained our dedication to historical cost accounting. We have never found a better way to do things. We need to look to the past to appraise today. We also recognise the future. We realise that the action we take today will have a consequence tomorrow. But at the same time we realise that tomorrow is not today. It cannot be guaranteed, nor can it be predicted, and we must always wait for the outcome of events.

That is as it should be. It is the nature of life. Far from being boring, it in fact accords with almost all human understanding. People dream, plan and hope for the future, but can't foresee every consequence of what they do today. They perceive the future as an unfolding pattern of behaviour.

So do we. We see that reporting past behaviour over a period of time is an important measure of progress against previously specified objectives, and part of the continuing whole.

That is why we can allocate cost to periods, even if that cost was incurred before a particular time period started, and even if some of the benefit may arise after the period has ended.

The accountant's view of the passage of time is in sympathy with that of most mature individuals. No reasonable person believes that today is the only real issue of concern and that tomorrow can be discounted.

Of course we should review how we report economic performance. Of course we must be willing to change to reflect altered perceptions. Continuing debate about what constitutes fair methods of reporting is always necessary.

But it's not surprising that the ASB's, in the light of its latest pronouncements, and in particular its Statements of Principles, is so unpopular.

Accountants don't recognise the ASB's view of time. The issue is fundamental to our profession and we have to do all we can to preserve our belief that the past, the present and the future are the basis of accounting.


I did, of course, lose this argument: the whole of IFRS is based on the economists view of time. But that is one reason why it is inherently unreliable, uncomparable from one entity to another and from one period to the next and of no use as a tax reporting base.

Historic cost accounting has its flaws, of course, but it is time for accountants to reclaim their historic view of time because, quite literally, today is not all that matters but we account as if it is.