Problems and Paradoxes in the Financial Reporting of Future Events

The present financial reporting system reflects a dual interest in the past and in the future. While the financial system focuses on past transactions as a starting point for the accounting basis for many items, it also includes accruals. Virtually every accrual contains an implicit or explicit assumption about future events. Several observations that address the problem of the treatment of future events are: 1. Knowledge of the past and present is the only basis for the assessment of future events. 2. The estimation of future events cannot be avoided. 3. A central feature of future events is that they are multidimensional because of their probabilistic nature. 4. The cost recovery principle represents a common way in which future events are implicitly treated. 5. Market prices represent one approach to the collapsing of multidimensional future benefits and sacrifices into a single number. 6. The concept of comparative advantage is one possible approach for addressing many of the future events issues.