In The FASB: The People, the Process, and the Politics, a book that we published under the McGraw-Hill imprint in 1998, we presented a brief discussion of what we called "a new perspective" that unveils the futility of many of the beliefs and actions of managers and others who have not yet grasped how the capital markets get and use information. We recently came across it and thought it would make an interesting column.Traditionally, accounting theory, practice and standards-setting have all focused on the flow of information from companies to the capital markets, under the assumption that this information is used by those markets to make investment and credit decisions. In effect, attention has been directed to the public financial statements moving between statement preparers and the capital markets (see box, "In theory").

Of course, a great deal of useful information can flow along this path, and accountants have been justified in focusing attention on the contents of public financial statements. However, it is not valid to focus exclusively on this flow as if it is the only source of information that the capital markets have. In fact, the situation is more completely and usefully represented by the bottom figure (see box, "In reality").

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