Creating the 'Big Mess' and its sequel Accounting for Crises use Marx's theory of capitalism to explain why there is no generally accepted theory of financial accounting, and explore the consequences, by studying the history of American accounting theory from c.1900 to 2007. The answer, Creating the 'Big Mess', is first that while late-19th century British accounting principles, founded on the going-concern concept, provided an objective basis for holding management accountable to shareholders for its stewardship of capital, and were accepted by the nascent American profession, they are inchoate. Second, Irving Fisher's economic theory of accounting, based on the assertion that present value is the accountants' measurement ideal, which is subjective, framed early-20th century American accounting theory, which undermined British principles, making them incoherent. In an unregulated, pro-business environment, leading theorists, particularly Henry Rand Hatfield and William A. Paton, Jr., became authorities for management discretion, creating the 'big mess' Hatfield saw in late-1920s American accounting. Accounting for Crises examines the roles of Fisher's theory in promoting the speculation leading to the 1929 Great Crash, aggravating the Great Depression, hindering accounting regulation from the 1930s, producing the Financial Accounting Standard Board's conceptual framework, and facilitating the 2007-2008 Global Financial Crisis.
Author(s): Robert Arthur Bryer
Series: Frontiers of Accounting and Financial History, 1
Publisher: World Scientific Publishing
Year: 2021
Language: English
Pages: 490
City: Singapore
Contents
About the Author
Preface
Acknowledgements
List of Figures
List of Tables
List of Abbreviations
Chapter 1 American Accounting Theory
Marx, Fisher and Accounting
Accounting for Crises
Overview
Chapter 2 British Accounting and Marx’s Theory of Capitalism
Late-19th Century British Financial Reporting
Legal Regulation
The Accounting Profession
Proprietary Theory of Double Entry Bookkeeping
British Balance Sheets
Stewardship
Double-Entry Bookkeeping
Marx’s Circuit of Capital and British Principles
Rate of Profit
Asset Valuation Rules
Tangible Assets In-Use
Going-Concern Basis
Recoverable Cost
Depreciation
Intangible Assets In-Use
Assets In-Exchange
Realization
Lower of Cost or Market
Floating Assets
Fixed versus Floating Capital
Profit or Loss Account
Gross and Net Profit
Special Cases
Extraordinary Profits and Losses
Equity and Liabilities
Secret Reserves
Concluding Comments
Chapter 3 Irving Fisher’s Accounting Theory
Fisher’s Crusade
Capital and Income
Double Entry Bookkeeping
Cost of Production
Balance Sheets
Asset and Liability Accounting
Conservative Accounting for Present Value
Socialist Theory
Concluding Comments
Chapter 4 Accounting Theory and the Profession
Transition to Advanced Capitalism
Marx’s Theory
Application to America
The Golden Age
Corporations and the Middle-Classes
The Birth of the American Profession
Lack of Legal Support
Uniform or Scientific Accounting
Capitalising Interest
Special Committee on Procedure
Economics and Accounting Education
Public Accounting in the New-Era
Concluding Comments
Chapter 5 Charles Ezra Sprague
Proprietary Theory
Accounts of Value
Asset Valuation
Profit or Loss Accountability
Revenues and Expenses
Fiduciary Accountability
Proprietorship versus Liabilities
Concluding Comments
Chapter 6 Henry Rand Hatfield
Intellectual Development and Influence
Theory of Double Entry Bookkeeping
Assets and Expenses
Fixed Assets and Depreciation
Asset Valuation
Profits, Losses, Surpluses, Reserves and Contingencies
Conservatism
Concluding Comments
Chapter 7 William Andrew Paton Jr
Early Intellectual Development
Entity Theory of Double Entry Bookkeeping
Who Controls the Corporation?
Objectivity in Accounting
Double-Entry Bookkeeping
Theory of Accounting Profit
Revenue-Expense Accounting
Assets and Expenses
Valuation Theory
The Road to Accounting Theory
An Encounter with Marx
Revaluation and Capital Maintenance
Realization
Encouraging the “Big Mess”
Fixed Assets and Depreciation
Inventory Valuation
Revenues and Expenses, Gains and Losses
Intangibles
Surplus, Reserves and Liabilities
Concluding Comments
Chapter 8 John Bennet Canning
Accountants’ Theory of Valuation
Fundamental Equation of Accounts
Assets and Liabilities
Income, Earnings and Financial Position
Direct and Indirect Valuation
Revaluation Technique
Statistical Valuation
Predicting Value
Proprietary Control
Concluding Comments
Chapter 9 The “Big Mess”
Financial Reporting in the 1920s
Disclosure
Depreciation Expense
Reserves and Extraordinary Items
Asset Valuation
Intangibles
Consolidated Accounts
Unaccountable Management
Defending the Accounting Profession
History
Capital Markets Research
Agency Theory
Whither Stewardship?
Conflicting Objectives
Accounting Theory and the Literature
Two Objectives
Consequences
Bibliography
Index
