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White Papers
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Center for Excellence in Accounting and Security Analysis of Columbia Business School (CEASA)
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The Subject Matter of Financial Reporting
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CEASA’s occasional paper challenges the view of primacy of a balance sheet-based financial reporting model and its extension into a full fair value accounting model.
The paper considers that the business activity is the primary object of financial reporting, which is characterised as investing cash in non-cash resources to be combined according to a specific economic logic to generate future net cash flows. The production of net cash flows is the business activity in its entirety, not single non-cash resources or constructs like "net assets". The paper argues that different business activities have different business models based on a different economic logic and that the value of a non-cash resource to an activity depends on the way it contributes to the net cash inflows under the economic logic of the activity in progress, i.e. depending on its function and use. The paper claims that accounting concepts and measurement attributes have to be aligned with the inherent economic logic of an activity if faithful representation is to be achieved.
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The Subject Matter of Financial Reporting (pages: 120)
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