Choosing accounting rules

Users of a firm's financial statements want those statements to emphasize a single figure that summarizes the accounting information related to the value of the firm's equity. At the same time, the firm wants to emphasize a single summary figure to reduce damaging disclosures to competitors. Under current US accounting rules, scaled earnings is closer to such a summary figure than such alternatives as book equity and scaled cash flow. Certain changes in the rules can increase the information in the earnings figure without sacrificing objectivity and practicality. Maybe the most radical change is giving up conventional articulation between the income statement and the balance sheet. The simplest way to make the earnings figure more informative is to make accounting choices that improve the association between earnings and value without giving managers more discretion.