Chapter 16
General Conclusions
In this chapter, we summarize the major findings of this book and comment on their significance. We suggest future action and express some hopes
Summary of Findings
We have examined some of the shortcomings of traditional financial accounting and have concluded that traditional retrospective accounting does not and cannot serve end-user needs. We have presented arguments that a single accounting system, AFTF, can satisfy all essential accounting needs. AFTF not only unifies all accounting, but simplifies financial accounting. FASB statements have been reviewed (Appendix 4) to further illustrate the simplifying and unifying power of AFTF. In addition, AFTF eliminates many of the inconsistencies and arbitrary judgments that infect traditional accounting.
AFTF is based on real cash flows and real market prices. These basic economic realities capture all values and make AFTF universally useful.
AFTF provides better information to and from the capital markets. This will make capital markets and management more efficient. The link between management decisions and financial results is clear and present. Management will become sensitized to the cost of capital, to value added, and to the shareholder’s interests. AFTF provides the measures, the methods, and the motivation to meet the future.
The dual validation and other disciplines have been designed to insure objectivity, reliability, and relevance, making valued added accounting an attractive alternative to traditional retrospective accounting.
We have seen how AFTF provides solutions for management, financial reporting, and to the accounting profession. The cooperative roles of manager, the modeler, and the accountant appropriately divide the work and responsibilities for AFTF while providing necessary checks and balances.
Crude, but illustrative financial reports have been provided (Appendix 3) to give AFTF financial reporting some concrete manifestation.
The insurance industry has been proposed (Appendix 5) as a logical and relatively easy starting point for AFTF.
Summary of AFTF
AFTF is an effective two-way communications tool, which communicates relevant information. AFTF eliminates the complexity of multiple accounting schemes, unifies financial measures at all levels, and simplifies many of the thorny problems we face with current accounting schemes. It has generally superior characteristics and would be a technological advance.
AFTF unifies accounting, but also unifies in a larger sense. It unifies the perspectives of management and the shareholder. It unifies accounting, economics, financial analysis, actuarial science, and management science. It unifies the means and the end. It unifies the present and the future. AFTF permits the future to enter into us and to be transformed by us, long before it happens.
AFTF is down to earth; its foundation is actual cash flows; it is grounded on management actions and plans; it is rooted in the realities of capital markets. AFTF is not a vague generality or narrow theory. It is specific methodology and disciplined practice within a broad theoretical framework. It has general application at all levels within an enterprise and to many types of enterprises.
AFTF promotes capital efficiency so that it adds value to the economic system. This value added is substantial and can be comfortably shared by all users. AFTF can benefit the shareholder, management, and the accounting profession itself. It could form a basis for an international accounting standard.
The Future
Necessity is the mother of invention. A unified accounting model is needed. A relevant accounting model is needed. An accounting model that integrates the cost of capital is needed. A model that captures all values, especially intangible and future values is needed. It is hardly necessary to invent an accounting system; it arises naturally as an expression of our needs.
I hope that I have lent support to the argument that the accounting model can and should be a prospective model. I hope that the AFTF disciplines, especially the dual validation, are understood and accepted as important ingredients to a reliable and relevant accounting model. The accounting profession has been flirting with the prospective accounting for some time. It is time for the profession to embrace the future. This book will be a success if it facilitates, accelerates, or formalizes the accounting revolution already in progress.
We began this book with several ambitious goals, none of which have been accomplished by this book. It is up to the accounting profession to determine and accomplish their goals; this book can only provide a perspective and suggest an approach. I believe that AFTF (DVA) is not only desirable and feasible, but inevitable. If this is true, then the accounting profession should take decisive action and lead the way.
Back Home
