Paul Miller and Paul Bahnson have criticized my op-ed ("It's time to modernize the financial reporting paradigm," Accounting Today, March 19-April 1, 2007, page 14) in their Spirit of Accounting column ("Finding a new wrinkle in smoothing," June 18-July 8, 2007, page 15).In their enthusiasm to lead accounting back to the 19th century, they fail to see our points of agreement and fail to recognize my challenge for a third-way financial reporting paradigm.
At the outset, it's helpful to identify the two currently known financial reporting paradigms. One paradigm is the revenue and expense paradigm of the 20th century, with a focus on measuring net income. Many people, including myself, recognize that this paradigm requires a major overhaul. The other paradigm is the asset and liability paradigm, with a focus on measuring comprehensive income, i.e., the change in net assets.
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