The Ecological Rationality of Historical Costs and Conservatism

Braun, Eduard

doi:10.1515/ael-2015-0013

Cited by 18 publications

(8 citation statements)

References 75 publications

(59 reference statements)

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“…The driving force for the market tendency toward equilibrium is "the daring, imaginative, speculative actions of entrepreneurs who see opportunities for pure profit," and pure profit here is also referred as pure entrepreneurial profit (Kirzner, 1997). Braun (2016) and Basu and Waymire (2017) explicate the role of the traditional accounting principles in the market as an entrepreneurially driven process. Basu and Waymire (2017) argues that historical cost and conservatism jointly propel entrepreneurial discovery by helping a decision-maker to specify the set of profit opportunities given local conditions.…”

Section: Origin and Attribution Of Business Profitmentioning

confidence: 99%

Rethinking the Concept of Equity in Accounting: Origin and Attribution of Business Profit

Otaka

2024

Accounting, Economics, and Law: A Convivium

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In this paper I reconsider the concept of equity in corporate accounting from the perspective of the origin and attribution of business profit. In both Financial Accounting Standards Board’s (FASB’s) and International Accounting Standards Board’s (IASB’s) Conceptual Frameworks, shareholders’ equity is synonymous with a firm’s net assets. However, it is not the sole definition of equity. We may regard equity as the interest in the corporate capital itself. From this viewpoint, shareholders’ equity consists of retained earnings attributable to shareholders’ as well as invested capital provided by them. We should note that, under the current corporate accounting system, shareholders are assumed to be the sole residual claimants. However, the existence of implicit contracts in corporate activities implies other residual claimants in addition to shareholders. If shareholders are not the sole residual claimants, it is necessary to revisit the proprietary theory under which equity is identical to shareholders’ equity. In this paper I reconsider the significance of the entity theory, which emphasizes an entity as an organization comprising various stakeholders and attributes business profit above shareholders’ expectations to an entity itself. The ownership interest cannot generate the excess profit by itself. Without firm-specific investments by employees and/or entrepreneurial activities by managers, the excess profit would never emerge. We should critically examine the foundation of the current corporate accounting in order to design a more equitable and efficient corporate accounting in which business profit is attributable not only to shareholders but also to other stakeholders who contribute to its generation.

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Section: Origin and Attribution Of Business Profitmentioning

confidence: 99%

Rethinking the Concept of Equity in Accounting: Origin and Attribution of Business Profit

Otaka

2024

Accounting, Economics, and Law: A Convivium

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“…The case is also made in one way or another in Basu et al (2009), Basu and Waymire (2019), Braun (2019) and Sunder (2011).…”

Section: The Alleged Impact Of Standardisationmentioning

confidence: 99%

“…The last half-century or so has seen, across much of the developed world, a shift in institutional arrangements for devising accounting policies, from choice exercised by individual practitioners, albeit latterly within a structure involving increasing levels of authoritative, but ultimately non-mandatory guidance and influence, to mandatory standardisation. Some modern commentators (see, for example, Basu 2015;Braun 2019;Sunder 2011), argue that standardisation introduces an impetus that is, from an evolutionary standpoint, arbitrary, so that it overwhelms the progressive force of adaptation by selection based on fitness for the environment. This conclusion appears to justify calls for a return to accounting's 'prelapsarian' age of innocence, unspoilt by regulation or, at least, a reversal of the current direction of travel; such calls have been made by, among others, Benston et al (2006), Jamal and Sunder (2014), Myddelton (2004), Walker (2010) and West (2003).…”

Section: Introductionmentioning

confidence: 99%

Are Accounting Standards Memes? The Survival of Accounting Evolution in an Age of Regulation

Rutherford

2020

Philosophy of Management

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This paper employs memetics to argue against the view that standardisation overwhelms the evolution of accounting. I suggest that, in an unregulated setting, accounting procedures constitute classic memes and survive according to their fitness for their environment, which is predominantly a matter of their suitability for investment decision-making. In a standardising regime, the standardising canon embodies a special kind of meme encoding ideas as actions to be imitated to realise those ideas. Evolutionary pressures and the canon develop in tandem, although not necessarily synchronously.If we accept the central tenet of memetics, which is also the assumption underlying the argument challenged here, that memes emerging before regulation were responsive to evolutionary pressures, we can analyse the responsiveness of the standardising canon by examining its relationship to a counterfactual continuation of the pre-regulated regime. The degree of synchronicity is an empirical, but elusive, question and we should follow Dennett’s recommendation that we settle for the philosophical realisations we can glean from memetics.I argue that three factors are of importance in addressing the question. Accounting memes function within a dense ecology, limiting radical and destabilising change. There has been a high degree of continuity, permeability and commonality in the intellection driving development: the same thinking has influenced policy design wherever it has taken place. Finally, the principal determinant of successful adaptation did not change on the transition to standardisation and the canon and its vehicles have survived. Consequently, we can conclude that standardisation has not disrupted the development of accounting.

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“…Since 2007, the financial industry, the so-called "real economy" and governments have been struggling with the aftermath of the last financial crisis (e.g., Barth et al 2010;Rudolph 2010). Although there were multiple causes, government action in the form of more lenient monetary policy in combination with fair value accounting is seen as a major culprit (e.g., Huerta de Soto 2009; Hering et al 2010;Brösel et al 2012; on the problems of fair value accounting see further, e.g., Biondi 2011;Braun 2019). The European institutions have concluded that, in addition to close monitoring of the financial sector (e.g., Kaserer 2010;Davies 2015), the auditing market must also undergo fundamental changes.…”

Section: Introductionmentioning

confidence: 99%

On the Political Decision of Audit Market Regulation: Empirical Evidence of Audit Firm Tenure and Maximum Durations within the European Union

2021

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After almost every economic crisis and corporate scandal, political actors announce the need for stricter regulatory measures for financial markets and companies, in an attempt to appease their voters and defend their political agenda. Regarding the latest international financial crisis, the EU responded, among other things, with comprehensive regulation of the European audit market. In the context of auditor rotation, after 17 June 2016, the duration of audit engagements should not exceed a maximum of 10 years. In this paper, we therefore investigate whether there is empirical evidence behind the 10-year threshold—or is it simply arbitrary? Our aim is to evaluate the audit market reform by the European Union (EU) (Regulation (EU) No 537/2014 and Directive, 2014/56/EU) related to the objective of improving the quality of audits. Therefore, our article addresses the most crucial element of this reform, the implementation of a mandatory audit firm rotation for public interest entities (Regulation (EU) No 537/2014, Article 17). Based on a unique dataset of 11,834 firm observations from all listed companies within the EU between 2008 and 2017, we provide for the first time a discussion basis for the assessment of audit market interventions by the EU. Hence, we compare the new maximum durations with average audit tenure in the particular member states. Even where we present only descriptive results, our results at least indicate that the “magic number” 10 (years) could be more the result of a political process—i.e., a consent between the European institutions—rather than evidence based. Therefore, our findings shall serve as a first starting point in the discussion of a vast and interdisciplinary research field.

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The Ecological Rationality of Historical Costs and Conservatism

Cited by 18 publications

References 75 publications

Rethinking the Concept of Equity in Accounting: Origin and Attribution of Business Profit

Rethinking the Concept of Equity in Accounting: Origin and Attribution of Business Profit

Are Accounting Standards Memes? The Survival of Accounting Evolution in an Age of Regulation

On the Political Decision of Audit Market Regulation: Empirical Evidence of Audit Firm Tenure and Maximum Durations within the European Union

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