Abstract
Chapter 2 discusses the concept of income and outlines the emphasis placed on the transactions approach to income measurement in the development of historical cost accounting theory. In summary, financial accounting under the historical cost system essentially involves allocating the effects of transactions between reporting periods, with the result that the balance sheet consists of the residuals of the income measurement process. Despite the conflict between the asset and liability vs. the revenue and expense viewpoints discussed in Chapter 2, the importance attributed to income measurement is highlighted by the FASB’s Concepts Statement No. 1, which states that ‘the primary focus of financial reporting is information about an enterprise’s performance provided by measures of earnings and its components. Investors, creditors, and others who are concerned with assessing the prospects for enterprise net cash inflows are especially interested in that information’.1 In addition, the emphasis that analysts place on companies’ reported earnings as a measurement of performance further illustrates the importance of income measurement (see Chapter 20 at 1 for a fuller discussion of this aspect).
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References
SFAC No. 1, Objectives of Financial Reporting by Business Enterprises, FASB, November 1978, para. 43.
SFAC No. 6, Elements of Financial Statements, FASB, December 1985, para. 70.
Ibid., para. 73.
For a full discussion of these two concepts of income, see ARB No. 43, Restatement and Revision of Accounting Research Bulletins, AICPA, June 1953, Chapter 8, or APB 9, Reporting the Results of Operations, AICPA, December 1966, paras. 9 – 14.
APB 9, para. 10.
Ibid., para. 11.
Presentation of financial information, Exposure draft of Chapter 6 of Statement of Principles, ASB, December 1991, para. 15.
SSAP 6, Extraordinary items and prior year adjustments, Revised August 1986.
ICAEW, Accounting Recommendation N18, Presentation of balance sheet and profit and loss account, October 1958.
ED 5, Extraordinary items and prior year adjustments, August 1971.
ED 7, Accounting for extraordinary items, July 1972.
CA 81, Sch. 1, Part. 1, Section B; now CA 85, Sch. 4, Part. 1, Section B.
ASC discussion paper, A review of SSAP 6, 1983.
ED 36, Extraordinary items and prior year adjustments, January 1985.
Ibid., paras. 6 and 8.
Ibid., paras. 14, 15 and 32.
Ibid., paras. 29 and 31.
Ibid., para. 37.
Ibid., para. 36.
Ibid., para. 39.
Ibid., para. 27.
Ibid., para. 18.
Ibid., preface para. 1.21.
SSAP 6, paras. 28–30.
Ibid., para. 2.
Ibid., para. 4.
Ibid.
Ibid.
Ibid., para. 11.
Ibid., para. 12.
Ibid., para. 14.
Ibid., para. 32.
Ibid., para. 14.
UITF 2, Restructuring costs, ASB, October 1991, para. 3.
SSAP 6, para. 11.
Ibid., paras. 11 and 13.
Ibid., para. 13.
Ibid., para. 37.
CA 85, Sch.4, para. 54.
SSAP 15, Accounting for deferred tax, Revised May 1985, para. 34.
SSAP 6, para. 38.
Ibid., para. 25.
Ibid., para. 35.
Ibid., para. 31.
Ibid., para. 16.
Ibid., para. 17.
SSAP 24, Accounting for pension costs, 1988, para. 92.
SSAP 6, para. 19.
CA 85, ss. 245 to 245B.
SSAP 6, paras. 18, 19 and 39.
The Council of the Stock Exchange, Admission of securities to listing, Section 5, Chapter 2, para. 25(b)(vi).
SSAP 6, para. 26.
The production of historical summaries in listed companies’ annual reports is not a requirement contained in Admission of securities to listing, but has been recommended by The Stock Exchange since 1964.
SSAP 6, para. 18.
SSAP 19, Accounting for investment properties, November 1981, para. 13.
SSAP 20, Foreign currency translation, April 1983, paras. 51, 53, 57 and 58.
SSAP 22, Accounting for goodwill, December 1984, para. 32.
ED 47, Accounting for goodwill, ASC, February 1990.
CA 85, s 130(2).
Ibid.
Ibid.
Ibid., ss 159–162.
Ibid., Sch. 4, para. 31.
Ibid., para. 34.
SSAP 6, para. 24.
Ibid., para. 34.
CA 85, Sch. 4, para. 3(6).
Ibid., paras. 1(b) and 8; SSAP 6, para. 37.
CA 85, Sch. 4, para. 57(2).
SSAP 6, para. 37.
CA 85, Sch. 4, para. 5.
SSAP 6, para. 37.
CA 85, Sch. 4, para. 54(3).
SSAP 15, para. 34.
SSAP 1, Accounting for associated companies, Revised April 1982, para. 21.
SSAP 6, paras. 3 and 36.
CA 85, Sch. 4, para. 57(3).
SSAP 6, para. 39.
CA 85, Sch. 4, paras. 4(2) and 58(2).
SSAP 6, para. 35.
CA 85, Sch. 4, para. 3(7).
Ibid., para. 46.
SSAP 6, para. 32.
APB 30, Reporting the Results of Operations–Reporting the Effects of Disposal of a Segment ofa Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions; AICPA, June 1973, para. 14.
This subject is addressed in the US in EITF 90–16.
FRED 1, The Structure of Financial Statements–Reporting of Financial Performance, ASB, December 1991, para. 16
Ibid., para. 42.
Ibid., para. 4.
Ibid.
Ibid., para. 43.
FRS 1, Cash flow statements, ASB, September 1991, para. 42.
FRED 1, para. 17.
Ibid., para. 6.
Ibid., para. 46.
Ibid., para. 19.
Preface to FRED 1, para. iv.
FRED 1, para. 8.
Ibid., para. 25.
ASB Bulletin No. 22, April 1992.
A Discussion Paper setting out the proposed scope of such a statement was published by the Board on 30 April 1992.
FRED 1, para. 28.
Ibid., para. 33.
Ibid., para. 27.
Ibid., para. 20.
Ibid., paras. 21 and 22.
Ibid., para. 23.
AIN-APB 30, Reporting the Results of Operations: Accounting Interpretations of APB Opinion No. 30; AICPA, November 1973, Examples 10–17.
APB 30, para. 20.
Ibid.
SSAP 6, para. 30.
APB 30, para. 23.
AIN-APB 30, Examples 12 and 16.
SFAS 4, Reporting Gains and Losses from Extinguishment of Debt, an amendment of APB Opinion No. 30, FASB, March 1975.
AIN-APB 30, Example 7.
APB 30, para. 8.
Ibid.
Ibid., para. 15.
Ibid., para. 18.
SSAP 6, para. 13.
APB 20, Accounting Changes, AICPA, July 1971, para. 20.
Ibid., para. 21.
Ibid., para. 18.
Ibid., para. 27.
SFAS 16, Prior Period Adjustments, FASB, June 1977, para. 11.
E46, Extraordinary Items, Fundamental Errors, and Changes in Accounting Policies, IASC, July 1992, para. 6.
Ibid., para. 8.
Ibid., para. 9.
Ibid., para. 5.
Ibid., para. 14.
Ibid., para. 18.
Ibid., para. 22 and 23.
Ibid., para. 26.
Ibid., para. 31, 34, 44 and 48.
Canadian Institute of Chartered Accountants, Handbook, Section 3480, Extraordinary items, para. .02.
Ibid., para. .03.
Ibid., para. .04.
Ibid., para. .05.
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© 1992 Ernst & Young
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Davies, M., Paterson, R., Wilson, A. (1992). Reporting of financial performance. In: UK Gaap. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-12998-0_19
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