Financial accounting figures have always been a result of a pragmatic compromise between the income statement model (i.e., revenue/expense approach) and the balance sheet model (i.e., asset/liability approach) (Dichev, 2008). However, during the last decades, financial reporting standards have been gradually moving from the former approach to the latter (Jinnai, 2005), describing the asset/liability view as the only logical and conceptually sound basis of accounting (Sprouse, 1966; Storey and Storey, 1998; Bullen and Crook, 2005). In response to the clear position taken by regulators, national and international standard setters, several scholars have stressed theoretical and empirical drawbacks associated to the balance sheet model. Indeed, the alleged conceptual superiority of the balance sheet is unclear, while it contrasts with how most businesses operate and create value (advancing expense to generate revenue and earnings) (Dichev, 2008; Kvifte, 2008). At the same time, according to Dichev and Tang (2008), by worsening the revenue-expense matching process, the balance sheet model has lowered the earnings quality of US listed companies, causing a marked deterioration in the forward-looking informativeness of earnings. Notwithstanding the still ongoing debate on the supposed conceptual primacy of the balance sheet model over the income statement model and on the actual implications exercised by the former over the usefulness of earnings, the asset/liability approach has been increasing its influence shaping the financial statements not only of listed companies but also of the private ones. […]
Key-Word: Issues in International Accounting
