Investors, creditors, and their advisors are deeply concerned about the relevance, reliability, comparability, and neutrality of the financial and other information that they use in their analyses and investment and credit decisions. That concern extends to the ingredients of those primary qualities, such as representational faithfulness and verifiability, which are ingredients of reliability, and timeliness and predictive and feedback values, which are ingredients of relevance. Many investors, creditors, and advisors are familiar with and generally accept the descriptions of those qualities of useful information in Concepts Statement No. 2, Qualitative Characteristics of Accounting Information.
The relevance issue of greatest immediate concern to many investors and their advisors, and also probably to many creditors and their advisors, pertains to quarterly reporting and commonly is described as an issue of timely reporting. Timeliness is an ingredient of relevance in Concepts Statement 2, and many investors, creditors, and their advisors feel that timely reporting is threatened by those who blame quarterly reporting requirements in the United States for "short-termism" and advocate semiannual reporting, which is more common in other countries.
Concerned investors, analysts, and their advisors argue that the blame for "short-termism" can better be placed elsewhere, that timeliness of reporting is essential to financial analysis, that quarterly reporting is optimal, and that quarterly reporting needs to be improved in several ways but most particularly by requiring quarterly disaggregated information. Some comments and observations on that issue appear in this section of the database, but most of the comments and observations and consideration of the issue are included in section 11-Interim Reporting and are not included or considered here.
Accounting and other information must be relevant to investment, credit, and similar decisions to be useful to investors, creditors, and their advisors. It also must have other qualities of useful information. The qualitative characteristics of accounting that are most important to the needs of financial analysts are relevance, reliability, both verifiability and representational faithfulness, timeliness and neutrality. Analysts need to know economic reality-what is really going on-to the greatest extent it can be depicted by accounting numbers. Information must be relevant to the process of analysis, one reason why much space earlier was devoted to describing the analyst's work
[p. 1] Information oftenis not available in distressed situations. If the accountingreports were more standardized with some more information that's pertinent to creditors and investors, analysts would not have to go through the process of trying to solicit information that management won't provide to them [p. 3] The sell-side analysts demand the most complete, objective information; the buy-side analysts and portfolio managers are only slightly less demanding, followed by the institutional sales brokers and the retail brokers. Brokers, however, rely heavily on the work of the sell-side analysts; their recommendations are thus based on high-quality information and analyses, even though they usually do not analyze the data themselves [section 1(a), p. 2].
Financial analysts desire information that is both relevant and reliable, but they often prefer information that is exact or certain but of limited relevance over information that is inexact or uncertain but relevant. Further, they sometimes prefer information that is inexact or uncertain but relevant over information that is exact or certain but of limited relevance. That ambivalence regarding relevance and reliability also is reflected in later subcategories of this category, such as those on reliability, neutrality, and conservatism (section 2(b)), and in other parts of the database, particularly those concerning value information (section 4), display in financial statements (section 5), and measurement uncertainties (section 9)
In an ideal world, the most relevant accounting data would be those that reported assets and liabilities in a way that would allow analysts to impute the future cash flows emanating from them individually and collectively. The certainty embodied in that world does not exist, and analysts need to strive for an accounting model that reflects the degree of uncertainty that besets a particular enterprise. The result necessarily is an eclectic valuation system, one in which cash expected to be received from assets and market and other current values of assets are used to the extent possible and historical cost is reserved for assets whose current value can as yet not be determined or estimated reasonably [p. 1-2; section 4, p. 4] Most investors, expecially the professionals and the semiprofessional individual investors, think that they can spot biases; some believe that they can filter out the biases to reach some degree of objectivity. If they cannot eliminate the biases for themselves, they place high value on information sources that can do so, either analytically or based on experienced judgment [section 1(b), p. 15] Almost half of the approximately one hundred investment institutions and bank lending officers in a survey disagreed that sometimes it was necessary to sacrifice relevance or reliability to gain the other, but about ten of eleven surveyed would choose to sacrifice relevance to gain reliability, rather than vice versa, if the choice had to be made [p. 8-9] Historical costs are sunk costs and there is little disagreement that they are often irrelevant to financial decisions, but there is considerable debate about whether they should be totally replaced by more relevant current values
There is some opinion among analysts that determining the current values of specific assets is a function of financial analysis, not financial reporting. Even among analysts not holding that view, a majority would not welcome an imminent change to "mark-to-market" accounting. They would not be happy to see historical costs removed from financial statements because they are not convinced that it would result in an increase in relevance sufficient to offset the reduction in reliability of the new data [p. 2, section 4, p. 4]
Some analysts support mark-to-market accounting wholeheartedly, believing that it should supplant historical cost in financial statements. More analysts support market value accounting for investments in marketable equity securities and financial instruments but not for tangible or other intangible assets or perhaps not for financial institutions [p. 2, section 4, p. 4].
Credibility of reporting is a serious problem. Investors, creditors, and their advisors believe that many companies' managements are not forthright in reporting problems and poor company performance, that much of the information they disseminate is too "promotional," and that troubled companies take great pains to convey the impression that they are not seriously troubled. They do not believe that management habitually tells outright lies in its reporting, but they suspect that management's striving to report its situation in the best possible light results in an apparent loss of neutrality that reduces the completeness and overall usefulness of the information. Investors, creditors, and their advisors believe, for example, that management emphasizes nonrecurring losses while burying nonrecurring gains in continuing earnings. They also believe that management tends to double-up when it has to report bad news by also recognizing other losses that have occurred earlier whose recognition has been deferred and/or losses whose current recognition will avoid the need to recognize expenses or losses in the future. Investors, creditors, and analysts often distrust what companies tell them in their annual reports. Most professionals doubt that many company managements are forthright in reporting problems and poor company performance [p. 2, 8]. Users believe that managements tend to disclose their company's performance in a manner that is most favorable to the company and therefore may not indicate actual results [section 1(a), p. 1-2, 12]
Professional investors and analysts believe that corporate managers naturally tend to disclose their company's performance in the most favorable light. Although they have confidence in management integrity, they say that managers commonly procrastinate in disclosing problems and that many managers express a more optimistic view of their company's situation than seems warranted by the professional's own analysis [section 1(a), p. 1] Investors, creditors, and their advisors have found that companies resist disclosing information about liabilities, contingencies, and other disagreeable things and events on grounds of competitive information content. Many who hear that explanation doubt that disclosure of so-called sensitive information is anywhere nearly as significant an issue as the companies would like to make it sound and think that the companies hide behind it [section 2(d), p. 12; section 1(b), p. 70, 74, 76-78] Investors, creditors, and their advisors doubt that annual reports candidly discuss bad news and problems, and what management is doing to solve them, and think that annual reports often play down bad news or hide it in the back of the report. In general, bad news is disguised, and good news is overplayed. Too often, the blame for mistakes is placed outside the company, and management won't take responsibility [p. 2-3] Comments showed a growing frustration with managements' lack of candor and insight into the numerous problems of both the life and property-casualty companies. It is hard to believe, but the quality of the industry's reporting to shareholders continues to deteriorate [p. 4-5] While very few investors doubt the integrity of corporate management, most believe that corporate reporting is not objective, that it is consciously or unconsciously slanted to show the company in its best light, by, for example, delaying the reporting of negative information in the expectation, or perhaps hope, that the situation will soon be corrected. Or they believe that management is simply so involved with the company that it reports biased information without realizing it. That perception makes "objectivity" one of the components of the value of investment information. Questionable credibility is one reason that both individual and professional investors use so many different sources of information [p. 3] What really shakes the confidence of the user community is the propensity to have a series of surprise adjustments or write-offs. And it always seems to group itself around periods of economic stress [section 2(c), p. 16; section 17(a), p. 14]. Frequent write-downs of assets and reoccurring restructuring charges have led users to believe that companies' asset values have been overstated in the past [section 17(a), p. 13; section 1(a), p. 50, 59], resulting in loss of confidence in the accuracy and reliability of values that are reported currently [section 17(a), p. 13, 14] That companies take the opportunity to recognize restructuring charges and write-off assets when they realize a large gain shows that management is often shortsighted and unreliable. Analysts can't believe what management tells them many times [p. 7] Professionals' skepticism focuses mostly on the qualitative aspects of corporate information, expecially on corporate disclosures and explanations of problems and poor performance. They have greater confidence in "the numbers," but even that feeling is tempered by knowledge that, despite financial reporting standards established by bodies such as the SEC, the FASB, and various industry regulators, corporate management still has great latitude in its selection of accounting rules, interpretations, cost and revenue allocation, and the like [section 1(a), p. 1]. Much of the credibility question is focused primarily on the front half of the annual report, the narrative part, which is subject to less rigorous scrutiny by regulators and auditors and offers wide latitude to management on inclusion or exclusion and reporting of information [p. 2].
Credibility of accounting information rests on its reliability and neutrality. Users can depend on the information to represent faithfully the economic things or events that it purports to represent without bias intended to attain a predetermined result or to induce a particular mode of behavior. To be useful, financial statements must be trustworthy. Two primary characteristics make them reliable-representational faithfulness, which refers to the likelihood that an accounting measure depicts accurately the nature of the object being measured, and verifiability, which refers to the likelihood that different accountants looking at the same evidence will draw similar conclusions. They also must be neutral, providing information that is without bias. Investors both buy and sell securities. Creditors extend credit to those who need time to pay and lend to those who need funds. Financial statements should inform both sides of a transaction in a way that neither is favored [p. 5] Virtually all investors want unbiased, candid, unembellished investment information. They do not want sales pitches from brokers, optimistic expectations (or self-serving excuses) from company management, or information distorted by inappropriate interpretation and analysis [section 1(b), p. 15] Users wholeheartedly support the precept that standards setters ensure, insofar as possible, the neutrality of information resulting from accounting standards. Any other approach would render financial statements useless to investors and creditors as well as to the economy and society at large [p. 34] Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions but should not try to determine or influence the outcomes of those decisions.
The role of financial reporting requires it to provide evenhanded, neutral, or unbiased information [p. 34] An investor in securities is confronted with an array of securities which he or she may buy, hold or sell, or decline to buy. If, through some misperception of conservatism, either in the reporting and valuation or in some kind of smoothing of earnings, the investor doesn't get a true picture of what the company operations are, the financial statements haven't fulfilled their obligation [p. 18] While all information affected by judgments necessarily has some bias, there should be no purposeful bias favoring any group. Absence of bias, which may be characterized as neutrality and fairness, has long been recognized in accounting [p. 34-35] Professionals have high praise for companies whose executives completely and candidly disclose their performance; in fact many regard that disclosure as an indicator of the competence and self-confidence of the management group [section 1(a), p. 1]. To all types of investors, the credibility of an annual report, or any other information source, depends on the degree to which it is correct, complete, and objective [reliable (representationally faithful and verifiable) and neutral, in the words of FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information] [p. 2]
Despite some short-term discomfort, full disclosure actually enhances management credibility in most cases, and earnings quality sometimes seems to be related to "representational faithfulness" and management's forthrightness in disclosure. The few companies whose annual reports are considered to be highly credible (Berkshire Hathaway and Quaker Oats are frequently-cited examples) earn high marks and expressions of great respect from professional investors [p. 3-4].
Many users of accounting information are somewhat ambivalent about its reliability and neutrality and are willing to give up some representational faithfulness and neutrality, as well as some relevance, to gain "objectivity," the continuity of a "benchmark," and the comforting bias of a little conservatism. If they see information as having more objectivity and continuity, they tend to be relatively less concerned with the lack of reliability of allocations of costs and revenues. Many investors, creditors, and their advisors rely on historical cost because of consistency and the relative objectivity [p.
17] Many use historical financial statements as a benchmark that is helpful in making forecasts of future performance. They need to be confident that the benchmark used stays the same, and historical financial statements provide that sort of stable reference point. The historical statements show how management allocated assets and the subsequent outcome of those decisions; which provides some guidance on the future [section 4, p. 13] Current practice, which is largely based on historical costs, provides a stable benchmark from one reporting period to the next, which analysts need to forecast future performance [section 4, p. 51, 84] What analysts want from the financial statements of a company is a record of the financial effects of actual economic events, and in the simplest terms. In a complex world some adjustments of such simple reports are necessary, but there must be a very good reason to step away from that record of actual historical transactions. That's the continuity, the benchmark that analysts look for in the statements as they now exist, which are predominantly historical cost [section 4, p. 86-87 ].
The most widely expressed view was that conservatism means that the uncertainties that inevitably surround many transactions should be recognized by exercising prudence in preparing financial statements but does not justify creation of secret or hidden reserves. Conservatism should not connote deliberate understatement of assets or overstatement of liabilities. Nor should financial reporting attempt consistent understatement of income, which in any event is impossible to achieve because decreasing income of one period inevitably increases income of a later period or periods [p. 12-13]
Conservatism is a prudent reaction to uncertainty to try to insure that uncertainties and risks inherent in business situations are adequately considered. For example, if two estimates of amounts to be received or paid in the future are about equally likely, conservatism suggests using the less optimistic estimate. However, if two amounts are not equally likely, conservatism does not dictate using the more pessimistic amount rather than the more likely one. Neither does it require deferring recognition of income beyond the time that adequate evidence of its existence becomes available nor justify recognizing losses before there is adequate evidence that they have been incurred [p. 13, 24] Almost all analysts would agree that so-called lower of cost and market methods are neither informative nor useful because they are based on the untenable premise that market value is a good accounting measure when it is lower than historical cost but not when it is higher. The best argument that can be made in favor of lower of cost and market is that it reveals market values when they are lower than cost, thus divulging important information on some asset impairments [section 2(a), p. 2] To question the reliability of some fair values is fine and good, but the fact is that the present historical book value that is recorded is significantly less reliable than someone's best guess of fair value today in 95% of the cases. For example, Rockefeller Center gets an appraisal every year and recently was appraised at $1.6 billion. Meanwhile, the bond is trading as if it's worth maybe $700 million. The best guess of what it's worth today is valuable to have relative to what it cost in 1936 [p. 9]
Many financial analysts really like to see a company where they can take a straight edge and describe the trend in earnings, which invites manipulation to which conservatism may contribute. Conservatism sounds like a nice thing, but the more conservative a company is, the more leeway it has to manipulate the trend. Analysts should be wary when accountants put in a change in accounting principles that appears to be more conservative because it might just give more room to manipulate the trend. Conservatism is a way of boosting future reported earnings [p. 11-12] If everyone agrees that a certain outcome is most likely-it's the best guess-but there is a more conservative outcome that is at least reasonably possible but not the best guess, financial statements should report the best guess without bias whether it's conservative or liberal. But if the likelihood is 50/50, the conservative estimate should be reported [p. 11-12] Conservatism is something that a creditor would always like to see. Quite often, management will say that their numbers are conservatively stated, and creditors will be much more liberal in applying underwriting standards to a company that did consistently conservative reporting. Conservatism should mean prudence in evaluating uncertain outcomes and amounts, not creation of secret reserves [p. 19-20] Companies should not ignore reality in the interest of conservatism. All analysts have seen companies that decide they will grow 16% rather than 20% this year and sock earnings away in reserves for future years. If they learn about it, analysts will go back and make adjustments because they want unbiased information. Similarly, analysts want to know if things are horrible [p. 12].
Another widely-expressed view was that conservatism makes it
likely that possible errors in measurement will be in the direction
of understatement rather than overstatement of net income and
net assets, and future surprises thus are likely to be pleasant.
The emphasis still is on prudence, but with more tolerance for
hidden reserves, properly used, than the other leading view.
To hold back something for a rainy day to avoid the need for an
unpleasant surprise generally is acceptable, even laudable, while
to use unspecified and unfathomable reserves, selective conservatism,
or both to smooth reported earnings is game-playing that not only
reduces the quality of earnings but also stains management's credibility.
There are two ways of looking at quality of earnings. One is
the conservatism aspect; for example, a company using accelerated
depreciation using the same useful lives as another company using
straight-line, is clearly more conservative and is perceived as
having better quality of earnings. The second aspect is predictability
and stability [p. 15]
To many equity sell-side analysts,
a company with high earnings quality is one that uses highly conservative
accounting principles; for instance a company that has accrued
reserves against future losses, write-downs, etc. For example,
an analyst reported earnings quality as high for a firm with an
"aggressive" policy towards establishing reserves, another
substantiated an assertion of high earnings quality by saying
that "the company is over-accruing foreign taxes as a way
of managing earnings," a third supported its assertion of
high quality earnings by noting that "the opportunity to
'manage down' earnings exists," and a fourth argued that
a financial company's earnings were more "credible"
because the company applied "more aggressive accounting"
methods in writing down assets, all of which suggests a possible
preference by many analysts for secret reserves [section 5(a),
p. 3, 4] A lot of the write-offs of assets and accruals of reserves
that are done are more to justify a bad year; dumping everything
the company possibly can into that year so its reported earnings
will improve next year [p. 19] If companies are setting up reserves,
analysts would like to see when and how the reserves are used-to
have a stream of information as the assets are written off about
what part of the reserves has been applied against those assets.
They see higher quality of earnings if a company breaks out the
reserves from the general accruals category because otherwise
analysts have no way of knowing what is in the reserves and how
they are applied to specific assets [section 5(b), p. 3]
In an
environment in which an increasing number of companies are taking
significant noncash charges for "restructuring," the
extent to which, and when over a period of time, those dollars
are going to be spent either to lay off people or to physically
close plants, analysts need to be able to get some sense of how
and when the cash reserved by restructuring charge has been used.
It goes back to when and how the reserve account is relieved
[section 5(b), p, 4] LDC loan-loss reserves were used to smooth
reported earnings and hide the cash effects. Some large banks
set aside billions of dollars and later flowed back as much as
a third of it into the income statement [section 5(c), p. 11].
Companies whose businesses are volatile should faithfully report
that volatility and should not smooth earnings to appear less
volatile than the underlying business. Stable results tend to
lower cost of capital, providing an incentive to try to report
stable results to lower cost of capital. The tendency is always
in that direction, but investors need to be apprised of the true
volatility to make correct credit judgments in allocating capital,
and it's important that the financial statements reflect the underlying
reality [p. 22] Companies that report significant swings
in earnings are more difficult to analyze. But if that is the
nature of their business or industry and thus a risk that needs
to be understood, an analyst wants to know that fact and not have
it buried in an accounting treatment [p. 31] Accruals and deferrals
are necessary for proper accounting for assets, liabilities, earnings,
etc., but they often require allocations and estimates of future
transactions. Care must be taken to see that their use not be
extended to permit "normalization" of earnings between
periods. Normalization, like forecasts and projections, is the
province of financial analysis and should not be incorporated
into financial reporting [p. 1]
Investors pay a premium for
stability because it is presumed to be an indicator of lower future
risk and uncertainty and thus should get a higher valuation, but
the market has gotten a little more sophisticated in viewing stability,
giving low multiples for more diversified businesses versus less
diversified businesses. An analyst can understand whether reported
volatility is reality much more easily in a one-product business
or one-industry business, like Coca-Cola, than in a highly diversified
company. Many large diversified companies have broken up, cognizant
of the fact that the market penalizes companies if investors and
analysts can't understand how the trend in earnings comes about.
Just showing a nice trend that investors don't believe represents
reality will not provide a value as high as about 10 years ago
[p. 13-14] Stability enhances predictability. If investors
believe a company can report earnings of at least so much in the
next year, it's worth more than if they have no idea [p. 15] Earnings
volatility has little or nothing to do with earnings quality if
the investor or analyst knows that the company is following good
accounting procedures [p. 14].
Conservatism is a doctrine that serves users of financial statements well and should be observed consistently by financial statement preparers. In dealing with estimates, there may be no such thing as neutrality. It's good in principle, but, in fact, in making estimates one must be subjective and can't be neutral. A useful bias is that if you have to err, err on the side of conservatism because it does less harm [p. 11]
Smoothing or normalization sometimes is useful in minimizing volatility from or quieting "noise" in reported earnings by removing the distracting effects of interim fluctuations in the assets that happen to be held at the moment. For example, pension accounting includes a kind of a compromise that permits companies to smooth the effects of changes in market values of assets in the pension fund and to spread the effects of changes in actuarial assumptions to eliminate or minimize volatility [p. 8] That aspect of pension accounting reflects the realities of the world and to that extent it's good. The real question is whether or not the actuarial assumptions are valid. They have been subject to some abuses [p. 8-9] Accounting is not in the business of putting businesses out of business. In some instances, an inability to spread gains or losses to minimize volatility would really create a problem [p. 8].
Financial analysis for both investment and credit decisions relies on comparisons, and the quality of comparisons is elevated to the extent that financial accounting standards produce financial statements that are consistent from period to period and comparable from company to company. Comparability and consistency in financial reporting over a long time, generally 5 to 10 years, is very important in comparing an enterprise's performance and financial position within its industry and across industry lines. Interfirm comparability in reporting allows comparison between and among different companies (cross-sectional analysis). Interperiod consistency in reporting allows comparison of data from one reporting period to the next for a single company (time series analysis). Internal consistency allows comparison of one financial statement item to another (financial ratio analysis) [p. 1] Financial statements that are consistent from period to period and comparable from company to company is a goal to be coveted and worked toward but never totally attained because of differences between companies and the need for new accounting standards [p. 2] For financial analysis, priority should be given to providing financial information that reflects and reports sensibly the operations of specific enterprises. If analysts could obtain reports showing the details of how an individual business firm is organized and managed, they could take more responsibility for making meaningful comparisons of those data with the unlike data of other companies that conduct their business differently. To mandate a disclosure standard while maintaining the flexibility of each enterprise to report its own circumstances and organization would be extraordinarily difficult, but would be a commendable undertaking [p. 3]
Financial analysis can handle differences between companies, even in the same business, if analysts can obtain information that enables them to understand the differences and interpret them as clearly as possible. Differences in accounting should be allowed as long as there is disclosure [p. 8], which are subjects considered more fully in section 8-Alternative Accounting Procedures.
Many investors, creditors, and analysts value information that
is consistent over time more highly than information that is comparable
between companies because they consider themselves capable of
adjusting information to compensate for noncomparabilities resulting
from use of alternative accounting procedures and many differences
in companies but they usually are unable themselves to fill gaps
in information resulting from business combinations accounted
for by the purchase method, changes in accounting procedures,
and the like. Financial analysts generally do not rely on a single
year's results to make their decisions, typically gathering historical
data for five, ten, or even twenty years and analyzing trends
and relationships in the information [p. 21
A change in
accounting principles destroys the comparability of data before
and after the change. Even if standards setters require restatement,
analysts obtain only three comparable income statements and two
comparable balance sheets. Analysts sometimes have sufficient
information to estimate the effect of the change on earlier years
and are able to restate the results themselves, and some companies
take the time to assist analysts to understand the pre- and post-change
data. Generally, however, the ability to analyze trends over
a long period is simply destroyed [p. 22] Significant costs to
users attach to new accounting standards that do not preserve
the consistency and comparability of financial reports, and the
diversity of approaches taken to the effective date and transition
provisions for new standards has created major problems of comparability
and consistency for users of financial statements
Particularly destructive of consistency and comparability are effective date and transition provisions that permit the standard to be adopted in any of several years and allow a choice of how to adopt, such as, retroactive application, prospective application, application to a single year with "catchup adjustment," and the like [p. 21]
For standard setters to issue fewer pronouncements is an unacceptable solution, but they should consider simplifying the procedure for adopting new pronouncements by making them effective for everyone in a single year and prescribing only one method of adoption [p. 21]
Overall, standards setters have done more to improve the usefulness of financial reporting by focusing on relevance and reliability than they have to improve comparability and consistency [p. 21] Accounting standards may lead to financial data being destroyed without commensurate improvement in the financial information provided
New accounting standards often are needed, and standards setters' prompt action is expected if existing generally accepted accounting principles are inadequate or misleading, but the destruction of financial data is a cost to users of financial statements that standards setters should consider in decisions about a new standard [p. 22]
Unless a new standard produces significantly better information (more relevant and more reliable), it should not be implemented [p. 22]
Many analysts believe that at least three standards adopted within the past few years do not meet the criterion that new standards should not be issued unless they provide significantly better information: FASB Statements No. 94 (Consolidations), No. 96 (Deferred Taxes), and No. 97 (Insurance Company Reporting). Problems caused by Statement 94 should be remedied by FASB's project on disaggregated information, but analysts complain that the information gap has been left open much too long [p. 22]
Comparability of accounting numbers is not universally good. The decision made in the interest of comparability that nonfinancial companies must consolidate their finance subsidiaries has reduced the amount of information available [section 8(a), p. 1]
Investors need consolidating financial statements if a financial subsidiary of a non-finance entity has been consolidated in accordance with FASB Statement 94 [section 3(c), p. 12].
A major objective of financial accounting standards should be to eliminate (or, at least, reduce) the use of alternative accounting methods under similar circumstances, which contributes to a loss of comparability and thus reduces a financial statement user's ability to judge relative risks. This is a minority view, which is considered more fully in section 8-Alternative Accounting Procedures.