The FASB and Accounting for Economic Reality

Abstract

The proposal by the Financial Accounting Standards Board (FASB) in 2002 to produce principles-based accounting standards is an explicit commitment to use its conceptual framework to improve financial accounting. In effect, it is a proposal to assist accounting for economic reality. However, an evaluation of the proposal and related FASB communications reveals a global strategy more concerned with achieving comparability and consistency than identifying improved ways of recognizing and representing socially-constructed reality by accounting numbers. The paper examines the philosophical notions of social reality and truthful correspondence in light of principles-based accounting standards and suggests that the FASB's superficial use of its conceptual framework in this respect is consistent with a history of conceptual frameworks as means of legitimating standard setting activities. As such, the FASB proposal would be no more than a short-term palliative to the long-term ills of financial accounting world-wide. The paper recommends a better understanding of the construction and representation of social reality by all concerned with the world of financial accounting.

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