Question

Q1: Corporate Performance Measurement: Despite the sophistication that financial accounting has reached thus far, accounting net income disclosed in corporate reporting is not a scientifically proven figure.?

Required: Address the statement in light of what we discussed in the lecture and the prescribed readings:

readings list you should read to answer Q1:

 Solomons, D. (1961). Economic and accounting concepts of income. The Accounting Review, 36(3), 374-383.

 Kimball, H. G. (1935). The Importance of Understanding Income and Profits. The Accounting Review, 131-135.

 Schmidt, F. (1931). Is appreciation profit?. The Accounting Review, 289-293.

 Kelley, A. C. (1951). Can Corporate Incomes Be Scientifically Ascertained?. The Accounting Review, 26(3), 289-298.

 Brief, R. P., & Owen, J. (1970). The estimation problem in financial accounting. Journal of Accounting Research, 8(2), 167-177.

Q2: What do you think of an accountant who does not mind swearing by the All-Mighty that the income s/he discloses in the income statement is true?

Answer 1

Q1: Despite the sophistication that financial accounting has reached thus far, accounting net income disclosed in corporate reporting is not a scientifically proven figure. This statement is absolutely correct because the net income disclosed is depending on the accounting estimates and the Company's policies, principles etc. which it adopted in accounting. For the same business, an accountant of a company provides some amount of net income and the other accountant of another company can provide a different figure. It completely depends on the policies adopted by the company. (ex. profit can differ only by changes in the methods of inventory valuation and depreciation).

Q2. I think that the accountant swearing on the all-mighty that the discloses the true income in the financial statements is true is necessary. Even though he prepares the financial statements accurately as it involves professionalism and also a bit of fear that the account she prepared will be audited by someone. Having other person work on the work done a person creates a major impact on the person doing the work.