Corporate Capers, Group Accounting Reforms

Graeme Dean discusses the effectiveness of accounting in providing serviceable information in commercial settings, focusing on Robert Maxwell and Ivar Kreuger.

Despite enduring deficiencies in the group information disclosed to interested parties, why are these issues inadequately addressed?

This requires an understanding of the historical development of professionally–prescribed accounting practices. Professional bodies worldwide for decades sought to prevent government intervention in the standard setting process. Ensuring maintenance of professional judgement is crucial.

To understand why reforms have not occurred requires briefly some comments about the problems of achieving change generally. Factors include: (i) Inertia due to apathy, antipathy, (ii) a concern that there would be reduced flexibility for practicing accountants and managers in interpreting prescribed standards, and (iii) the suggested change  would result in increased corporate group disclosure (a reduction in the presumed right to corporate privacy – an example I would suggest of the fallacy of “misplaced concreteness”).

Expanding on the para above. Practitioners, standards setters, and educators, arguably, are generally unconvinced about the net decision making benefits of the main features of Chambers’ and others’ [some were noted in the podcast] reforms—namely, that providing present market (primarily exit price) information in respect of all of an entity’s assets and liabilities, albeit with estimation error, is preferable to supposedly less error in respect of the primarily less relevant, still largely cost allocation-based information reported presently in a firm’s accounts – eg. historical cost information about assets held, depreciated values of assets held, allocated costs shown not as expenses but as capitalized assets values, and other features of traditional accounting methods, like consolidated group accounting asset and profit numbers.  Initial concerns about Chambers’ reforms have endured, namely resistance from inertia due to apathy, antipathy to accounting innovation, a penchant for conservatism (sometimes called ‘prudence’); and  it would seem that political forces have changed little since the 1950s when Chambers first proposed his reforms. Arguably, those running businesses generally still prefer secrecy to disclosure for a variety of reasons (Chambers, 1966, Accounting, Evaluation and Economic Behavior, p.345).

Image courtesy of interviewee. May 6, 2024

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