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 measure of performance further illustrates the importance of income measurement.
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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.
SFAS 130, Reporting Comprehensive Income, FASB, June 1997, para. 1.
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.
Exposure Draft, Statement of Principles for Financial Reporting, ASB, November 1995, para. 6.19.
Ibid., para. 6.20.
Ibid., paras. 6.27 and 6.28.
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.
SSAP 6 (Revised), paras. 2 and 4.
Ibid., paras. 11–14 and 32.
Ibid., paras. 28–30.
Ibid., paras. 3 and 34.
Ibid., paras. 25 and 35.
Ibid., paras 8–10 and 38.
Ibid., para. 26.
Ibid., para. 18.
UITF 2, Restructuring costs, ASB, October 1991, para. 2.
The Institute of Chartered Accountants of Scotland, Making Corporate Reports Valuable, ICAS, 1988, para. 1.18.
FRS 3, Reporting financial performance, ASB, October 1992, para. 1.
Ibid., para. 14.
Ibid., para. 12.
Foreword to Accounting Standards, ASB, June 1993, para. 15
Ibid., para. 14.
Ibid., para. 39.
Ibid., para. 4.
Ibid., para. 14.
Ibid., para. 15.
Ibid., para. 17.
Ibid., para. 43.
Ibid., para. 42.
Ibid., para. 4(c).
Ibid., para. 43.
Ibid., para. 43.
Ibid., para. 44.
SAB No. 93, Accounting and Disclosure Regarding Discontinued Operations, SEC, 11–4–93, Question 4.
FRS 3, para. 18.
Ibid., para. 45.
SSAP 2, para. 14(d).
FRS 3, para. 3.
Ibid., para. 16.
Ibid., para. 15.
FRS 6, Acquisitions and Mergers, ASB, September 1994, para. 36.
FRS 3, para. 6.
Ibid., para. 20.
Ibid., para. 2.
Ibid., para. 5.
Ibid,, para. 19.
Ibid., para. 20.
Ibid., para. 46.
Ibid., para. 42.
Ibid., para. 21.
Ibid., para. 31A.
Ibid., para. 26.
Ibid., para. 55.
Exposure Draft, Statement of Principles for Financial Reporting, ASB, November 1995, para. 6.29.
FRS 4, Capital Instruments, para. 93.
FRS 3, para. 31A.
Ibid., para. 20.
Ibid., para. 22.
Ibid., para. 24.
Ibid., para. 50.
Ibid., para. 14.
See, for example, Preface to FRED 1, para. iv.
FRS 3, para. 52.
Ibid., para. 25.
James Capel & Co., U.K. Equity Research, Accounting Matters — Update on 1992, Potential Developments in 1993, January 1993, p. 17.
FRS 3, para. 28.
Ibid., para. 59.
CA 85, Sen. 4, para. 3(7).
Ibid., para. 46.
FRS 3, para. 7.
Ibid., para. 60.
Ibid.
Ibid., para. 61.
UITF 6, Accounting for post-retirement benefits other than pensions, ASB, November 1992, para. 8.
FRS 3, para. 63.
CA 85, ss 245–245B.
FRS 3, para. 29.
Ibid.
CA 85, Sch. 4, para. 15.
Ibid.
EC Fourth Company Law Directive (78/660/EEC), Article 31(2).
UITF 14, Disclosure of changes in accounting policy, UITF, 21 November 1995, para. 3.
London Stock Exchange, The Listing Rules, Chapter 12, para. 12.52.
APB 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, AICPA, June 1973, para. 20.
Ibid., paras. 21 and 22.
Ibid., para. 23.
AIN-APB 30, Reporting the Results of Operations: Accouiiting Interpretations of APB Opinion No. 30, AICPA, November 1973, Examples 10–17.
APB 30, para. 20.
Ibid., para. 20.
Ibid., para. 23.
AIN-APB 30, Examples 12 and 16.
SFAS 4, Reporting Gains and Losses from Extinguishment of Debt, an amendment ofAPB Opinion No. 30, FASB, March 1975.
APB 30, para. 8.
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.
SFAS 130, Reporting Comprehensive Income, FASB, June 1997.
Ibid., para. 53.
Ibid., para. 14.
Ibid., para. 129.
Ibid., Messrs. Cope and Foster’s dissenting opinion.
Ibid., para. 18.
IAS 8, Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies, IASC, Revised December 1993, para. 7.
Ibid., para. 10.
Ibid., para. 11.
Ibid., para. 12.
Ibid., para. 16.
Ibid., para. 6.
Ibid., para. 21.
Ibid., para. 20.
Ibid., para. 26.
Ibid., para. 28.
Ibid., paras. 34–57.
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© 1997 Ernst & Young
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Davies, M., Paterson, R., Wilson, A. (1997). Reporting financial performance. In: UK GAAP. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-13819-7_22
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