ABSTRACT
Suppose we assign a large number of skilled accountants to study the records of a given set of transactions undertaken by a large business corporation. We ask each of them to prepare a report of the results of the firm, in the form of a profit and loss account and balance sheet. Each report might disclose a different set of numbers even though none of our accountants behaves carelessly or improperly. One cause of difference is that accounting reports reflect some estimates of future events. It is likely that different accountants will make different estimates or will interpret differently the estimates of others. A second cause of difference is more surprising. It arises from the use of different procedures to reflect the impact of given information. Such lack of uniformity has provided a basis for much criticism of financial accounting in recent years. 1 The subject has no generally accepted theory available to guide the resolution of disputes about the relative merits of alternative procedures. The resolution of disputes is often avoided by allowing the use of several alternative procedures.
