Predictable Steward

Issue as to whether financial accounting is primarily for predictive purposes, or to report on past performance–the report on the steward who took your money.

Historically, accounting information was looked at from the perspective of stewardship: how did these managers use my money over the past year? Should I invest more, or pull my money out?

Greater movement now to see accounting information as having a major predictive role. Use a series of income statements to predict income in the future, based on income in the past. How logical? When is the future a function of the past? How many uncontrollable variables? The fallacy of regressions…

Plus, if one considers that there is mixed evidence as to the how important accounting information is to investment decisions, assuming such decisions are even rational…the best accounting can offer is a picture of the past?

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About brucelarochelle

http://www.lmslawyers.com/bruce-la-rochelle
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