Where Are the Fig Newtons?

Accounting principles were once the focus of attention with respect to financial reporting until the inception of the Financial Accounting Standards Board (FASB), when attention was shifted to auditing standards. Accounting principles are again becoming the focus of attention, mainly because: 1. the FASB is moving into difficult areas where its determinations will have profound effects, 2. business activity has an increasingly international character, and 3. the flood of leveraged buyouts (LBO) has raised concerns. The sharp contrast between market valuations and LBO valuations has led many to question the relevance of conventional financial statements as tools for evaluating companies and their securities. The debate over this role of financial statements strikes at the conservatism that has characterized the accounting process, including the reluctance to introduce onto the balance sheet anything that cannot be reliably priced transactionally.