Reliability Makes Accounting Relevant: A Comment on the IASB Conceptual Framework Project

Accounting in Europe, Volume 11, Issue 2, pp. 211-217

15 Pages Posted: 19 Sep 2014 Last revised: 8 Oct 2015

See all articles by Andrew M. Bauer

Andrew M. Bauer

University of Waterloo - School of Accounting and Finance

Patricia C. O'Brien

University of Waterloo

Umar Saeed

Welch LLP

Date Written: September 12, 2014

Abstract

In July 2013, the International Accounting Standards Board (IASB) welcomed comments to their discussion paper A Review of the Conceptual Framework for Financial Reporting. We argue that the IASB should revisit its decisions about the concepts of reliability and prudence, to address the inherent accounting issue of moral hazard. Within the contexts of goodwill and securitization accounting, we illustrate how reliability and prudence can help standard-setters to identify standards that can address moral hazard. We further illustrate the pervasiveness of moral hazard, using the context of executive compensation arrangements. Ultimately, we conclude that a strong conceptual framework should enhance the credibility of financial reporting. We view this as the fundamental role of accounting.

Keywords: credibility, Conceptual Framework, international accounting, moral hazard, prudence, reliability

JEL Classification: M4

Suggested Citation

Bauer, Andrew M. and O'Brien, Patricia C. and Saeed, Umar, Reliability Makes Accounting Relevant: A Comment on the IASB Conceptual Framework Project (September 12, 2014). Accounting in Europe, Volume 11, Issue 2, pp. 211-217, Available at SSRN: https://ssrn.com/abstract=2497563 or http://dx.doi.org/10.2139/ssrn.2497563

Andrew M. Bauer (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Ave W
Waterloo, Ontario N2L 3G1
Canada

Patricia C. O'Brien

University of Waterloo ( email )

200 University Avenue, West
Waterloo, Ontario N2L 3G1
Canada
1-519-888-4567 (Phone)
1-519-888-7562 (Fax)

Umar Saeed

Welch LLP ( email )

36 Toronto Street, suite 1070
Toronto, Ontario M5C 2C5
Canada
6472889200 (Phone)
M5C 2C5 (Fax)

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