Accounting For The Future
At Your Service
This draft proposal is designed to encourage a new prospective accounting perspective. The new perspective would correct many of the basic deficiencies of traditional retrospective accounting. The new accounting would provide several other major benefits, among them: accounting relevance, accounting unification, efficient capital markets, and effective management.
The proposal reviews the essential purposes of various types of accounting. It examines the fundamental problems of traditional retrospective accounting and proposes a prospective model (AFTF) which corrects those problems. The prospective accounting model attaches values to decisions, so that the accounting is automatically decision-useful. The values attached are shareholder or capital market values, so that financial reporting is automatically relevant. The proposal explores the important question of income recognition and concludes that immediate value recognition is the relevant measure. Next the proposal reveals a simple key mechanism (dual validation) by which prospective accounting is made both relevant and reliable. Additional disciplines resulting from disclosures are examined.
The proposal shows in detail how AFTF provides management, reporting, and accounting solutions. The proposal explains how AFTF satisfies the essential purposes of all types of accounting and thereby unifies accounting. AFTF is based on the universal realities of market values and cash flows and, hence, can be the basis for uniform accounting principles and practices across national boundaries.
The proposal suggests a natural division of labor and responsibilities for the new accounting. This division is a key feature in making the accounting feasible and in providing a system of checks and balances. The proposal examines the concept of expected cash flows, fundamental to AFTF, and concludes that expected cash flows are objective and reliable. Even though present, these characteristics are not critical for AFTF. Finally, some of the problems with AFTF are cited; all of the problems cited are surmountable and arise mainly from the novelty of AFTF.
The author believes that the time has come for a fundamental change in the accounting model. The purpose of the proposal is to persuade others that a change is needed and possible. The proposal is the first step.
Humphrey H. Nash, Sr.