The 3 Rs of accounting standards

Posted on November 22 2018

A week or so ago I suggested it was time that there was civil society campaigning for reform to both UK and international accounting standards. I happened to spend last evening discussing this idea with someone who broadly shares the idea, coming at it from an academic perspective.

I explored a number of ideas. One was that in my opinion accounting standards revolve around just three issues. Each, in my opinion, begins with R.

The first is Recognition. Literally this means that accounting has to recognise that an issue is of importance and therefore requires its attention.

The second is Recording. This means that accounting has to work out how the issue that has been recognised can be reflected in accounting records. This involves issues of measurement as a result. Whilst these measurements will often be financial that is not always the case.

Thirdly, there is Reporting. This relates to how a record is related to a user who wishes to make use of it for the purpose of decision making.

I readily admit that this is an attempt to break the accounting standard process down into its most basic components. I have a simple question to those with some accounting experience here, which is does it work? And, are you aware of alternatives?

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7 Responses

  1. Pilgrim Slight Return says:
    November 22 2018 at 9:08 am

    I’m going to put it more prosaically.

    The accounting profession has on the whole been bought out by the vested interests it is meant to be patrolling. It has bee co-opted into what passes as best practice of greed.

    It needs to face up to this truth. It puts profits before probity. Morally as a profession it is finished in my view. Forever tainted until it sorts itself out.

  2. Michael Green says:
    November 22 2018 at 9:22 am

    A few W’s, probably naive or duplication.
    What am I not seeing? (Which can has the worms?)
    Why are things being done this way? (What is being hidden or distorted?)
    What are the assumptions? (Are they as sound as they appear?)
    Where are my responsibilities? (Customers? Suppliers? Lenders? Staff?)

  3. Elmer says:
    November 23 2018 at 7:50 am

    I like the simplicity of the concept. My view is that a fourth “R” is needed and that means “Review”. There must be either a stately or another really independent authority (having the power of sanctions, fines etc) because we know that the “Review” of the Big Fours does not meet the standards civil society assumes to happen. Whatever accounting methodology is chosen there must be an independent body who reviews the quality of the work on day-to-day, no (not realistic), better year-to-year basis or whatever basis. It depends a bit of the kind of business e.g. banking needs t report daily its liquidity status to the Central bank of Switzerland but the grosserie story around the corner does not required a daily reporting request to perform) .

  4. archytas says:
    November 23 2018 at 7:51 am

    This is a profession so incapable of self-regulation we had to make a law about not writing in illegible print! I’d start somewhere else on this, but sadly doubt there is a solution within what is now a corrupt system and perhaps always was when you think of the Athenian Treasury’s claims to have 10 times the amount of silver than was actually there when the doors were kicked in. Lying with figures riddles our politics and commerce. Once fraud is condoned it is hard to compete honestly and we lack means to make language honest, giving way to claims of easily faked sincerity. One can think of ideal rules, but practically the very real threat of jail-time at the point of signing off is needed. Gaming needs to be criminalised in ways slick lawyers can’t get round. The main problem, as usual, is this would have to be global – otherwise we cede competitive advantage to the cheats. Given the idealism in this, the questions boil down to:
    1. Do the rules themselves matter much – they may be mere espoused theory?
    2. Should we focus instead on producing the theories in practice for the wider public through a long-term “accounting” free of accountancy interests?
    3. Should company and other accounts face regular scrutiny of ordinary mortals to check on ordinarily intelligible veracity?