The future of accounting and financial reporting part II: The colorized approach

A commentary discusses the importance of accounting and financial reporting to: 1. asset, capital and investment allocation, 2. contracting and ex post settling up, and 3. corporate stewardship and monitoring. Several reasons are reviewed for the concern that accounting and financial reporting are becoming increasingly less useful, including changing concepts of the traditional firm recognition and measurement difficulties, issues related to the timeliness of financial reports, and limitations associated with current information distribution channels. A refinement to the "black and white" accounting paradigm is suggested to begin to address certain of these concerns, and to quicken the debate on the need and benefits of change. By decreasing the emphasis devoted to determining whether a particular item should be recognized, and focusing greater attention on whether the item is relevant and the degree of attestation that may be associated with any related disclosure, a more finely textured "colorized" accounting model might be developed.