Reporting on the past: A new approach to improving accounting today

It is proposed that the financial reporting model be amended to report on the ex post accuracy of a firm's prior estimates. Doing so will identify firms that have abused their reporting discretion in the past and provide valuable information about the expected credibility of the firm's disclosures in the present. Firms will also have a greater incentive to make accurate estimates and accruals if they know that opportunistic estimates will be explicitly revealed in the future. Accounting regulators might be more inclined to recognize non-traditional assets in the financial statements if a system is in place that gives firms an incentive to accurately estimate the value of these assets. An example of the type of disclosure proposed is presented.