Musings on Accounting Research by Steve

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It’sssss backkkkkk – the conceptual framework


While I Knew in principal that both FASB and IASB were playing around again with a ( they like to call it THE – that is a socially constructed notion) conceptual framework I did not know they were taking themselves so seriously. In a speech to the American Accounting Association Christine Botosan (CPA, CA the hidden Canadian on FASB ) gave a talk at the plenary session on the moves Being made toward a new internally consistent deductive conceptual framework to guide standard setting. If she said it once she said it four time “internally consistent deductive framework” would almost solve all ills and that relevant information had to have priority as relevance trumps all in decision making.

First, there is no behavioural evidence I know of that says relevance trumps every other dimension of decision making. Certainly white noise and not relevant information would at best be neutral however in financial accounting we are dealing with trade offs along degrees of relevance as it is rare that a piece of information in it the normal range considered b standard setters is clearly white noise or not relevant.

Second, is it better that each investor access future uncertainty (and here I an focusing on the classic distinction between risk and uncertainty) based on reliable information about the present state of affairs instead of having one potentially more relevant future oriented information data point provided by experts that the investor does not appreciate the degree of uncertainty about that number? The hubris around much of Accounting in this area is that it thinks we are dealing with ” risks” rather than uncertainty.

The wisdom of the crowd when accessing an uncertain future event is generally at least as good as the best expert wisdom and often better according to a long line of research. Anyhow I am ramblings but now you know it is really back!

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