ABACUS, Vol. 40, No.

3, 2004

GEORGE J. STAUBUS
3ORIGINAL
ABACUS
©
0001-3072
Abacus
ABA
October
40
ACCOUNTING
Blackwell
2004
Blackwell
Oxford, UK ARTICLE
Publishing
MEASUREMENT
Publishing, 2004
Ltd.

Two Views of Accounting Measurement

The two views to be addressed here are the Chambers/Sydney view that
accepts only one measurement method—current net realizable price—
and the Staubus/mainstream view that accepts several measurement
methods in the same financial report. These two views became well-
established in the literature of accounting in the 1960s and their propon-
ents have clung tenaciously to their oft-criticized positions for some
forty years. However commendable their original expositions may have
been, their continuing existence does no credit to the small coterie of
accountants now interested in theory.
This article is aimed at ‘narrowing the areas of difference’ between
adherents to the two views by isolating fundamental bases for them and
exposing the reasoning supporting their structures. In a nutshell, they
differ in their objectives and they can be expected to survive unless their
adherents agree on the objectives of financial reporting.
Key words: Accounting; Chambers; Market price; Measurement; Staubus.

The literature of accounting theory includes two incompatible views of the meas-
urement of enterprise assets and liabilities when current market quotations are
unobservable. One, which I shall label ‘the Sydney view’, has been held by a small
set of serious scholars scattered across the English-speaking world but especially
associated with the name of the late Raymond John Chambers of The University
of Sydney. That view has been adopted by several associates of Professor Cham-
bers including Murray Wells, Frank Clarke, Peter Wolnizer, Graeme Dean,
Michael Gaffikin and, most recently, Brian West. I shall forego naming adherents
in other countries for fear of offending by omission.
The alternative view has been accepted by the accounting standards-setting
establishment represented especially by the International Accounting Standards
Board and the national standards-setting bodies of several major English-speaking
countries. That view, incorporated in the decision-usefulness theory, has been
associated with my name for several decades, so I might reasonably take some
responsibility for a share of the disagreement. The standards setters have not,
however, adopted my rationale for the use of a repertoire of measurement methods,
and have developed their own term—attributes of an asset or liability—instead
of measurement methods. I shall describe my own long-established view.

George J. Staubus is Professor Emeritus, University of California, Berkeley. staubus@haas.berkeley.edu

I am grateful for the assistance of the anonymous referees and the editor for suggestions made regarding
an earlier version of this article.

265
 ABACUS

Why does this state of affairs continue to exist? To me, the small coterie of peo-
ple seriously interested in accounting theory are subject to criticism for permitting
it to exist for so long without exhibiting any evidence of intellectual discomfort. I
am unaware of any attempts to reconcile the two views as bases for financial report-
ing,1 or to show the value of having the two views—in the last third of a century.
Personally, I am ashamed of the branch of accounting in which I have toiled for
several decades, so feel compelled to address the anomaly. My long period of
relative comfort was recently disturbed by my study (Staubus, 2004) of the admir-
able treatise by Brian West (2003) in which he adhered to the Sydney view.
My view and the Sydney view have much in common; I shall identify several
such commonalities below. The heart of our difference is that the Sydney view
provides for use of only one measurement method, which most recently has been
labelled ‘current net realizable price’ (Chambers and Wolnizer, 1990, p. 71). Cur-
rent cash equivalent was an earlier label. My (the majority) view provides for use
of several measurement methods, or types of evidence of value. In both cases, the
discussion excludes the measurement of cash, about which there is no disagreement.
In the ensuing paragraphs I search for the most basic level of our disagreement
and the reasons for our disagreement at that level. In subsequent sections I
attempt to trace routes that appear to lead to the different measurements, includ-
ing hazards that might be encountered along the way. Speculations on the genesis
of our disagreement follow. I regret to say that I cannot guarantee this search to
be absolutely even-handed.

POINTS OF AGREEMENT

I see four important points of agreement:

1. Up-to-date observations of market prices are, in principle, more relevant to
the concerns of financial statement users than are older prices. The current
price of an asset or liability in the market in which it could be sold or liquid-
ated is an excellent measurement of its value to the enterprise and its owners.
(A good example is frequently traded securities.)
2. Reliability (freedom from bias, objectivity, accurate representation of the phe-
nomena that the information purports to represent) is an important criterion of
the value of bits of financial data. Note that the reliability criterion is applied to
a specific application of a measurement method to a net asset (asset or liability)
item, not to financial statements in general.
3. Additivity is an important characteristic of a set of measurements that are
added or subtracted, meaning that all measurements included in a set of finan-
cial statements must be measurements of the same economic phenomenon and
must be made in terms of the same unit of measurement. An implication is that
a set of measurements made in monetary units of differing significance to users

1
Allan Barton’s article dealing with the applicability of current costs and current cash equivalents in
the theory of optimum resource allocation may be the most nearly relevant one to come to my
attention (Barton, 2000).

266
 ACCOUNTING MEASUREMENT

of financial statements (as under inflationary conditions) is defective if adjust-

ments are not made for those differences.
4. Conventional accounting has many serious defects.

SOURCE OF DIFFERENCES: OBJECTIVES OF FINANCIAL

REPORTING2

Here I shall attempt to put my finger on the most basic steps in our reasoning at
which there is a difference between myself and proponents of employing only one
measurement method. I have previously made an effort to summarize my theory
of accounting measurement in a one-page diagram, fully recognizing the risks
entailed in such an abbreviation. That diagram appears as Exhibit 1. I have not
found a comparable diagram in Sydney literature, so I shall attempt to construct
one—Exhibit 2.

Information on Financial Position

My reading of the Sydney view discloses a clear-cut starting point—financial position
and liquidity-oriented definitions of it.
Financial position is the capacity of an entity at a point of time to engage in indirect
exchanges; it is represented by the relationship between the monetary properties of
the means in possession and the monetary properties of the obligations of an entity.
(Chambers, 1966, p. 101)
[Financial position] relates to the capacity of the firm as a whole to engage in or to vary
any of the operations, assets and debts of the firm in any way deemed to be necessary or
promising. (Chambers and Wolnizer, 1990, p. 71)
Contemporary financial position is ascertainable objectively by reference to the market,
and is relevant to all choices. (Chambers, 1966, p. 101, emphasis added)
In relation to financial position the prices assigned to means in possession are realizable
prices or current cash equivalents and the prices assigned to obligations are current cash
equivalents. (Chambers, 1966, p. 101)

The focus here is on the very practical issue of current spending power. Consider
the common situation of an individual who is facing a decision regarding the
possibility of a major purchase that would require a large amount of money. A
person’s financial capacity to make the purchase is critical, so the individual’s
assets and liabilities need to be examined with a view to determining the amount
that could be raised and prudently spent (providing for enough to pay off existing
liabilities first). This is a situation calling for information regarding financial
adaptability, which requires quick access to cash. The same information need
applies to managers of the large business entities with which many professional
accountants work. Furthermore, investors faced with the decision whether to
liquidate the investee enterprise need that liquidity information.

2
Chambers customarily emphasized functions (rather than objectives) of financial reporting (see
Chambers, 1976a).

267
 ABACUS

Exhibit 1

DIAGRAMMATIC OUTLINE: ACCOUNTING TO INVESTORS VIEW

The concepts of assets and liabilities of greatest interest to people are the ones
described here. For example, a survey of independent professional persons’ views
of assets has shown that they must be saleable (Chambers et al., 1984). Again, an
authoritative dictionary’s definition of wealth: ‘All property that has a money
value or an exchangeable value’ (Webster, 1963, p. 2589). ‘The significant concept
and measure of wealth in a market economy is the monetary equivalent, or the
sum of the market prices if sold, of all severable things owned’ (Chambers, 1966,
p. 70). Wealth is our subject matter; its measure is market price.

Decision-Useful Information for Investors

In my thinking, asking about the objective of financial reporting is the key that
can lead us to many answers, especially to the decision-usefulness objective,

268
 ACCOUNTING MEASUREMENT

Exhibit 2

DIAGRAMMATIC OUTLINE: THE SYDNEY THEORY

which, in turn, leads inexorably to questions regarding users and their uses. When
I chose to focus on managers of an enterprise as users, identification of their uses
of accounting information led me to an emphasis on activity costing (Staubus,
1971). When, on the other hand, I chose to focus on external users, an attempt to
identify those users led me to investors (owners and creditors) and other parties
seeking information on the success of investments in the enterprise, for example,
taxing authorities, labor unions and others representing suppliers or customers of
the enterprise (Staubus, 1961). My work on external financial reporting has always
focused on the world of investors in securities who are concerned with the enter-
prise’s future capacity to pay (cash, in the normal course of enterprise activities,
unless otherwise stated). The result has been an emphasis on the positive and
negative cash-flow potentials of enterprise assets and liabilities. In the absence of
observable market quotations for those cash-flow potentials, a surrogate market

269
 ABACUS

price must be chosen on the basis of its reliability and its relevance to investors’
cash-flow-oriented decisions.
The typical investment decision maker of concern to me is a shareholder or
prospective shareholder. If she is considering a purchase of a new home or a new
automobile, she probably will want to check her personal liquidity situation.
Similarly, if she is considering the purchase of shares in an enterprise, she needs
to know her liquidity situation, often including her brokerage account balance,
her bank accounts and her easily liquidated investments. If a share sale is under
consideration, her liquidity may or may not be important. Whether it is a purchase
or a sale, holding the shares is an option. To evaluate that option, she typically
seeks information from the enterprise that will help her judge its capacity to pay
dividends over some investment horizon. I call that cash-flow-oriented informa-
tion regarding the enterprise.
In sum, Sydneysiders start with a focus on financial position (an enterprise’s
liquidity position), and the decisions of people controlling the enterprise’s spend-
ing transactions. I start with the decision-usefulness objective and decisions by
external investors who are vitally interested in prospects of cash flows from the
enterprise, which leads to interest in the enterprise’s prospective cash flows,
almost always in the context of ongoing operations; rarely does an external inves-
tor have occasion to decide the question of enterprise liquidation. In my opinion,
these are the most basic differences in the two views on accounting measurement.
Neither is wrong; take your choice.

DIFFERENT ROUTES TO DIFFERENT OBJECTIVES

The Road to Financial Position Information

An accounting system yielding information on enterprise liquidity as described
above presumably provides information on the current net realizable prices of all
assets and liabilities at each reporting date. That clearly requires development of
routine methods for ascertaining such prices for very many assets and liabilities
in a large firm (Chambers and Wolnizer, 1990; 2000, p. 71). Certain cases might be
easy ones, for example, marketable debt securities owned. Various categories of
easily severed assets, especially mobile equipment such as common pieces of
transportation equipment, are known to have markets that permit observation
of prices without great difficulty. Real estate other than the most common types,
including the fixed materials handling equipment (piping, conveyors) in the typ-
ical processing or manufacturing facility or ‘public utilities’, would appear to be
more challenging, considering that every such asset is unique. It appears to me
that no market price would be observable for a vast portion of what are conven-
tionally viewed as the properties, plant and equipment of an industrial or com-
mercial enterprise, given a reasonable standard of reliability. I doubt if cost would
be a serious constraint.
In Chambers’ major presentation of ‘Continuously Contemporary Accounting’ in
1966, he anticipated departures from a pure view of reporting at current exit prices.
For example, in the cases of finished goods and work in progress inventories:

270
 ACCOUNTING MEASUREMENT

We may, therefore, take as the current cash equivalent the initial prices of the goods and
services sacrificed in production, transformed to contemporary prices, and aggregated. If
this sum exceeds the prevailing price of the finished goods, of course, the latter will be
used, for in this case there is no doubt about the profit margin; there is no margin. . . .
[O]n the assumption that the firm has some future, the pricing of work in progress may
be carried out on the same principle as has been suggested for finished goods inventories,
by transforming acquisition prices of the goods or services sacrificed to prices at present
ruling for those goods and services, provided their sum does not exceed the market resale
price of the finished product. The pricing of raw materials inventories according to the
same principle is relatively simple. . . .
Approximations to current cash equivalents are permissible where the market itself
does not provide adequate information. (pp. 232, 233, 264 –5)

Chambers went on to discuss ‘durables’ for which second-hand prices are observ-
able and those for which no price can be observed. For the latter, ‘There seem,
therefore, to be grounds for assigning no current cash equivalent to them’ (1966,
p. 243). That means they must be written off upon acquisition.3 I interpret his 1966
position as providing for current cost as a surrogate for exit value for inventories,
requiring the application of the ‘lower of current cost and market rule’, but not
permitting current cost for property, plant and equipment; instead, if no second-
hand prices are observable, the expenditure would be written off, as is the present
general rule for expenditures on research and development. My readings indicate,
however, that current cost is no longer an acceptable surrogate, in the Sydney
view, for current net realizable prices (Chambers, 1995, p. 259), so write-offs must
occur if no market prices for second-hand property, plant and equipment, work in
progress, or finished goods inventories are observable. That is, the current view is
indeed a single-measurement method view. Whether a loss should be recorded
when saleable raw materials are put into process and a gain recorded when the
processing yields a marketable finished good is not clear.
Is it fair to say that the treatment of physical assets with no observable market
price is a large issue that would need clarification for the Sydney School’s single-
measurement method system to be accepted as practically applicable? Either
expenditures on such assets must be written off or estimates of current cash equi-
valent using methods (market value appraisals of plants?) subject to criticism on
the reliability and cost criteria would need to be used. (This approach could be
described as discovering an unobservable market price.) Otherwise, surrogates
based on entry prices would seem to be the choice, thus departing from the single-
measurement method view.
The immediate write-off of expenditures on non-marketable assets is an import-
ant feature of the Sydney single-measurement system. GAAP (generally accepted
accounting principles) has the same feature with respect to many expenditures
on intangibles that cannot be accounted for after acquisition at an acceptable
standard of reliability. It is generally recognized as an unfortunate feature of

3
‘Alternatively, or additionally, a memorandum account may be appended to the usual financial
position statement, setting out the amount of the outlay and an equivalent part of the residual
equity’ (1966, p. 245). This aspect was developed further in several pieces, for example, Chambers
(1976c, p. 145).

271
 ABACUS

GAAP because it discourages managements from investing in such assets in

circumstances in which short-run performance reporting outweighs the long-run
interest of investors. Observers of management performance have long recog-
nized that whatever is measured and relied upon as evidence of performance
will be emphasized by managers, so correspondence between measurements
of management performance and achievement of investors’ objectives is highly
desirable. Immediate write-offs of expenditures that are made to yield intermedi-
ate to long-term benefits result in mismatching of costs and benefits, so must be
counted as a defect in an accounting system. That must be especially apparent
in cases of enterprises with such material amounts of non-marketable property,
plant and equipment, and/or intangible investments that immediate write-offs
would result in negative reported owners’ equity. Unfortunately, the perfect
measurement system is not available in a world of uncertainty; this imperfection
is a price that must be paid to achieve the best possible measurement of financial
position.

The Road to Cash-Flow-Relevant Information

The decision-usefulness approach to external financial reporting first identifies
investors as the major users, then seeks to provide evidence of enterprise cash-flow
potentials because that is of great interest to investors. If one sees a different core
set of external users, a different measurement approach may be appropriate.
However, I have observed that investors, including owners and creditors (sup-
pliers, lenders, etc.) together with others, such as labour unions and tax collectors,
who are interested in investors’ success, constitute such an overwhelming portion
of parties interested in enterprise financial reporting that they may be viewed as
the general public interest, not a personal concern of one group. In the current
investment environment, the investors that are most important to society are
full-time professionals who manage the pension funds, the endowment funds, the
mutual funds or investment trusts and so on, plus those providing the recommenda-
tions publicized by brokerage firms. When they ‘get it wrong’, we all suffer from
the mispricing of securities. Their methods are important to society and to those
engaged in producing the financial reports on which they rely.
In the world of finance, ‘The value of any asset is a function of the cash flows
expected from that asset’ (Haugen, 1997, p. 48). Looking at shares in a corpora-
tion: ‘We can say that shareholders’ wealth is the discounted value of after-tax
cash flows paid out by the firm . . . We shall assume that managers always make
decisions which maximize the wealth of the firm’s shareholders’ (Copeland and
Weston, 1983, p. 21).
This view of wealth items (assets and liabilities) is shared by finance practition-
ers and academics alike. Indeed, in finance, the type of schism that exists in
accounting between academics and practitioners does not exist; each respects the
other. Future cash flows are the heart of financial economics.
Of course, many investors, such as momentum investors and other chartists,
make little use of financial statements. The type of investment analysis that does
rely heavily on financial statements is called ‘fundamental analysis’. According to

272
 ACCOUNTING MEASUREMENT

my reading of the relevant literature, the general working objective of ‘fundamental

analysis’ is a forecast of the enterprise’s future cash flows, because such flows
must be the basis for dividends, interest payments and redemption of debt upon
maturity. Reported earnings, adjusted for specific accounting actions that analysts
do not trust, such as amortization of intangibles, possibly depreciation and inven-
tory profits, and various non-recurring items, are accepted as approximations of
normal cash flows under current operating circumstances. That version of cash
flow is projected using information gathered by the analyst in the course of his/
her intensive study of the enterprise and its industry. An alternative focus of the
fundamental analyst is the price/earnings ratio, in which a stock’s current P/E
ratio is compared with its norm in an effort to find underpriced or overpriced
securities. In such work, reported earnings are adjusted as described above to
obtain a version of recurring earnings that is closer to recurring cash flows than
the earnings reported in the crude financial statements. Analysis of the issuer’s
cash-flow prospects is even more important to investors in debt securities. Secur-
ity analysis is an exceptionally subjective exercise, based on what the analyst
hopes is a set of objective financial statements. The aim of accounting to investors
is to provide those financial statements. The aim of normative accounting theory
is to show how that objective can best be achieved.
The analysis described above is almost always based on the assumption of
continuity of enterprise operations unless evidence to the contrary is available.
It follows that analysts are interested in the established flow patterns of cash and
other resources (operating cycles), not in immediate sale of assets not ready for
sale or immediate payment of liabilities not due, unless evidence to the contrary
is available. In any case, managers are expected to make the ‘best uses’ of assets
and pay liabilities in the most advantageous patterns permitted by contracts; the
‘as-is’ exit values called for in the Sydney view are suitable only in the ‘discontinued
operations’ case. ‘Best-use’ exit values generally are more relevant to cash-flow-
oriented decisions.
Accounting for units customarily referred to as assets and liabilities, as opposed
to valuation of the enterprise as a whole, is the job of accountants. Users of finan-
cial reports do not want personnel of the enterprise to provide their estimates
of enterprise value, and they understand that accounting for small components
does not yield a sum that is a close approximation of enterprise value. The most
valuable information that accountants can provide about individual assets and
liabilities is their current market values. Investment company accounting is widely
recognized as very good; in fact, buyers and sellers of investment company shares
often accept the net asset value shown in the balance sheet as fair prices at which
to buy or sell those shares—a great compliment to those financial statements.
Unfortunately, accountants have much greater challenges in reporting the net
asset items of other enterprises at their current market values. They must resort
to surrogate measurements in order to approximate the unobservable prices. It is
important that those surrogates be chosen with regard to the realities of market
economics. That is, those choices must be made using economic principles, not
arbitrarily. Consider the case of contractual claims to cash or obligations to pay

273
 ABACUS

cash at future dates, when there is no observable market price for the item. A
principles-based measurement must allow for both the waiting period from meas-
urement date to collection, using a discount rate observed in financial markets,
and (in the case of the claim) a probability of failure of the debtor to pay (using
an observed loss percentage). The reason for making those adjustments is that
markets are observed to do so, and both users and preparers of financial state-
ments must respect markets. The result is a ‘simulated market price’ that is tied to
a genuine market price by principles-based adjustments (Staubus, 1985, 1986). It
is not the output of the accountant’s imagination.
Another example: Markets are observed to relate input prices to output prices.
It is not necessary to assume perfect competition, in which the sum of an enterprise’s
input prices equal its output price, to understand that there is a relationship and
that it varies widely in quality. Thus, current cost is a surrogate, of varying quality,
for current exit price of an enterprise product; in some circumstances, it is a reas-
onable substitute for an unobservable exit market price. Similarly, yesterday’s
buying price is almost always a close surrogate for today’s buying price, so histor-
ical acquisition price is a surrogate for current cost—the quality of the surrogacy
depending heavily on the length of the time interval. Furthermore, it is clear that
adjustment of an old price by a specific index, or even, at worst, by a general price
index, typically provides a closer surrogate for current cost than the old, un-
adjusted ‘historical cost’. Finally, the dividing line between usefully accurate surrogates
and useless surrogates is a judgment call that principles-oriented accountants
must make. On that basis, many intangibles, and possibly tangible assets, might be
omitted from balance sheets. Most importantly, in principle, perfect measurements
of assets are impossible, as every asset of every firm is unique, so the only perfect
measurement of it is today’s price for that unique asset; such a price can only be
observed on the day it is purchased or sold (Staubus, 1996, pp. 47–54). Accounting
always uses surrogate measurements.
This approach to the measurement of an enterprise’s assets and liabilities is
consistent with the work of professional financial analysts. They cannot have as
much confidence in the resulting net book value of the owners’ equity in the typ-
ical enterprise as they would in the case of the investment company, but if they
find any accounting-based financial reports useful, reports based on the above
measurement scheme are the ones.
Two aspects of this approach to obtaining objective market measurements
of enterprise assets appear often to be misunderstood. One is that the surrogate
relationships on which the value of clearly imperfect measurements depend are
firmly embedded in real world economics. The other is that all of the readings of
market prices are market assessments of wealth items, so meet the additivity test.
The necessity to add measurements and estimates of quantities obtained by different
techniques is well accepted in those sciences heavily dependent on measurements
that are never perfect, such as physics, just as it is in all branches of economics.
Income is the change in enterprise net assets other than in transactions with owners.
Analysts must make their own judgments whether an item should be considered
recurring or non-recurring.

274
 ACCOUNTING MEASUREMENT

One other observation on the array of measurement methods I have described:

Current cost appears to deserve a prominent role in the accounting for long-term
and short-term assets held for use, such as many unique items of property, plant
and equipment, and inventories of raw materials and work in process. I find that
current cost also typically is relevant to managerial decisions regarding the con-
sumption of such assets, so the incremental cost of using it in external reporting
could be low (Staubus, 1971, pp. 6–9).
I have suggested (1985) that this view of market simulation is implied in GAAP
but is implemented very crudely because accountants have not articulated a
theory of GAAP. It is clear that standards setters are moving, slowly and with
strong opposition from corporate managements, towards improved implementa-
tion of this intuitive, natural understanding of investors’ interest in enterprise
wealth. In particular, one specific interest in improved accounting that is shared
among Sydneysiders, standards setters and myself is the value of updating old
market price measurements.
One criticism of this type of accounting is that it does not provide satisfactory
information on enterprise liquidity. That criticism cannot be fully countered by
inclusion of a historical cash-flow statement and the listing of the more liquid
assets and liabilities first on the balance sheet. Those users who place more value
on liquidity information than on information relevant to future cash flows in the
normal course of business are poorly served by the latter. A circumstance in
which liquidity information is likely to be preferred is the case of an enterprise
whose future as a going concern is in sufficient doubt that the auditor’s certificate
includes a ‘going concern exception’. Chambers always held that accountants
should not make that judgment and that under CCE accounting it is not necessary.

SPECULATIONS ON THE GENESIS OF THE DISAGREEMENT

I have consistently based my work in accounting theory on the decision-usefulness

objective since 1953, when I filed my completed dissertation with the University
of Chicago faculty (Staubus, 1954/1980), and have worked towards development
of a theory based firmly on that objective since that time. Many people concerned
with improving financial reporting have accepted that objective in the last fifty
years, including the standards-setting establishment. As noted above, a key step in
that theory is the identification of users of financial information and the uses of it.
In 1958, I completed a version of my theory labelled A Theory of Accounting to
Investors, a title that I considered awkward but accurate. On 29 December 1958,
I wrote a fan letter to Ray Chambers shortly after having read the first of his
papers to come to my attention. The lengthy letter included: ‘I personally rank it
as the best accounting paper that I have ever read’. Actually, I subsequently
found several of Ray’s that I think were better. I followed Ray’s work fairly
closely for many years. In that time I have not found a serious analysis of users
and uses of external financial reports, or of internal reports either, for that matter.
In my opinion, that is the reason for our difference. It should not be surprising
that two travellers heading for different destinations take different routes.

275
 ABACUS

Another difference between us, I believe, has been our interests in enterprise
management and investments. Ray spent a number of years in business enter-
prises as a youth, I believe. I never did. He turns to that setting often, it seems to
me. On the other hand, I have been an investor in corporate stocks and bonds for
fifty-five years. I have no information regarding Ray’s investments. Also, I have
been involved with the work of a fine faculty in finance, including participation in
its conferences and workshops, so have learned something about financial eco-
nomics and the use of financial statement information by professional investors.
At one time I found economics more interesting than accounting, and I have con-
tinued my interest in microeconomics. I do not know if my experience in finance
is any more extensive than Ray’s, but it might be. I have not seen evidence of such
interest in his written work. I speculate that this difference in interests has been a
factor in our views on the uses of financial statement information and on account-
ing measurement. That difference may account for Ray’s acceptance of a liquidity-
oriented version of wealth, as opposed to the utility-oriented view that has been
gaining ascendancy among economists. I confess that I am far less familiar with
the works of other Sydneysiders.
Another field in which our interests have differed, according to my observa-
tions, is psychology. In his 1960s works, Ray discussed matters such as the relief
of strains and adaptive behaviour at a level that I could never match. I suspect
that his interest in switching asset holdings ties to that interest in adaptive behaviour.
These speculations may be entirely wrong, of course. I do believe, however,
that the basis of our different views on useful enterprise financial information can
be found somewhere in our different backgrounds.
Another point of difference might be noted. The literature of the Sydney point
of view occasionally suggests that the adaptability view of financial position is
relevant to all actions requiring information on financial position, and that it is
useful to any and all actors who need to know the enterprise’s financial position.
That literature has suggested that accounting information should be of general
usefulness—that specific, personal uses should not be the concern of the account-
ant. That seems to contrast with my concern for identifying users and uses of
financial information. One could be concerned that my approach could lead to
different information for every user, or every group, which would present the
accountant with a hopeless task.4 I plead guilty to concern for specific categories
of users and have worried about conflicts between their needs. However, my early
reviews of user groups and their needs identified investors and others interested
in investors’ successes and prospects as having common interests in the enterprise’s
future capacity to pay, and I found only two other important user groups: tax and
regulatory authorities, and managements. I agree that the specialized needs of
the former can impose burdens on accountants, and I do not know how to meet
their needs and investors’ needs in one set of financial statements, although those

4
Chambers addressed this issue (1976) in his response to Demski’s position on the impossibility of
normative accounting standards (1973).

276
 ACCOUNTING MEASUREMENT

authorities’ interest in investors’ success results in much overlap. In the case of

managements, I have investigated their needs and find that they do, indeed, need
information that investors do not; a major difference is in the level of detail
required. However, if managers are viewed as working in the interests of owners,
then success for managers should be measured by their meeting owners’ objec-
tives, thus giving them interests in the same views of wealth and income as the
owners hold, so no different accounting measurements are required. If managers
do not seek to achieve owners’ objectives, I must confess to neglecting their
‘needs’. So I do not see that focusing external financial reporting on the needs
of investors can be criticized as excessively personal, or that it causes any easily
remedied problems—at least none comparable to those caused by not enquiring
about users’ needs. If one sees external financial reports as properly focusing on
investors’ needs as too restrictive, some explanation of any conflicting needs would
interest me, and perhaps many others.
At another level, our different views seem to make use of different readings of
two concepts that impact our choices of measurement methods: additivity and
surrogacy. Ray firmly believed that current cost measurements and exit value
measurements were not additive. I believe that a market price at which an asset
was purchased and a market price at which an asset could be sold are comparable
to apples from different orchards rather than to an apple and an orange. No two
apples are identical, just as every asset is unique, in the context of the economics
of financial markets. Requiring perfect identity of apple A and apple B would
prohibit reporting the existence of two apples. Nor are any two markets equal.
Market values that vary in many respects but are measured in Australian dollars
are added in useful economic aggregations. With regard to surrogates, my view of
the economic relationship between buying and selling prices, and between a price
today and a price yesterday, is that in the absence of information regarding one,
the other can be a useful, imperfect substitute.
But more fundamentally, I believe we disagree on what we are trying to meas-
ure. Ray concentrated on adaptability, which ‘embraces every action related to
survival—capacity to pay short-run debts, cover for long-term debts, capacity to
pay wages, trade accounts, dividends and taxes and so on’ (1976c, p. 145). He
insisted that he was not concerned with liquidation, and I accept that. But he
surely was concerned with capacity to raise cash in the short run. That interest
was in conflict with his equally strong insistence that ‘The whole of the accounting
was intended to be accounting for going concerns’ with measurements of CCE of
assets ‘in the ordinary course of business’ (1974, p. 130). That may be the basis for
the continuing arguments over the measurement of non-vendibles, bonds payable
and accounts receivable. In contrast, I focus on the management’s responsibility
to make the best use of the firm’s assets in the interest of investors. In the major-
ity of cases, non-redeployability of so many assets makes continuity the best
course. Surrogate measurements are the only reasonable solution in such circum-
stances. That approach, of course, is subject to another set of questions regarding
observability of the evidence, relying on predictions, etc. Again, evaluate the
alternatives and take your choice.

277
 ABACUS

CONCLUSION

The Sydney view and the decision-usefulness view differ in their starting points,
the decision makers addressed, the decisions to be informed, and the populations
whose concepts of wealth are accepted. Those differences bring us to different
prescriptions for the measurement of assets and liabilities when current exit mar-
ket prices are unobservable. The Sydney view begins with a concept of financial
position, addresses the concerns of those with spending authority and their spend-
ing decisions, and emphasizes entity managers’ practical concept of available
wealth. The decision-usefulness view begins with an enquiry regarding the objec-
tives of financial reporting which leads to the usefulness of financial reports in
making decisions, especially those of investors, thus focusing on the view of
wealth held by participants in financial markets. On the other hand, the two views
agree on the need for information useful in making decisions, the value of up-to-
date measurements, the additivity requirement, and the importance of the reli-
ability criterion. It has been a pleasure to travel with Ray Chambers on the road to
better financial reporting.

references

Barton, A., ‘Reflections of an Australian Contemporary: The Complementarity of Entry and Exit
Price Current Value Accounting Systems’, Abacus, October 2000.
Chambers, R. J., Accounting, Evaluation, and Economic Behavior, Prentice-Hall, 1966.
——, ‘Third Thoughts’, Abacus, December 1974.
——, ‘The Functions of Published Financial Statements’, Accounting and Business Research, Spring
1976a.
——, ‘The Possibility of a Normative Accounting Standard’, The Accounting Review, July 1976b.
——, ‘Continuously Contemporary Accounting: Misunderstandings and Misrepresentations’, Abacus,
December 1976c.
——, ‘In Quest of a Framework’, Asia-Pacific Journal of Accounting, December 1995. Reprinted in
Chambers on Accounting, Vol. 6, R. J. Chambers and G. W. Dean (eds), Garland Publishing,
2000.
Chambers, R. J., W. S. Hopwood and J. C. McKeown, ‘The Relevance of Varieties of Accounting
Information: A U.S.A. Survey’, Abacus, December 1984.
Chambers, R. J., and P. W. Wolnizer, ‘A True and Fair View of Financial Position’, Company and
Securities Law Journal, December 1990. Reprinted in Chambers on Accounting, Vol. 6, R. J.
Chambers and G. W. Dean (eds), Garland Publishing, 2000.
Copeland, T. E., and J. F. Weston, Financial Theory and Corporate Policy, Addison-Wesley, 1983.
Demski, J., ‘The General Impossibility of Normative Accounting Standards’, The Accounting Review,
October 1973.
Haugen, R. A., Modern Investment Theory, 4th ed., Prentice-Hall, 1997.
Staubus, G. J., An Accounting Concept of Revenue, Dissertation, University of Chicago, 1954; Arno
Press, 1980.
——, A Theory of Accounting to Investors, University of California Press, 1961.
——, Activity Costing and Input-Output Accounting, Richard D. Irwin, 1971.
——, ‘An Induced Theory of Accounting Measurement’, The Accounting Review, January 1985.
——, ‘The Market Simulation Theory of Accounting Measurement’, Accounting and Business
Research, Spring 1986.

278
 ACCOUNTING MEASUREMENT

——, Economic Influences on the Development of Accounting in Firms, Garland, 1996.

——, ‘On Brian P. West’s Professionalism and Accounting Rules’, Abacus, June 2004.
Webster’s Third New International Dictionary, G. & C. Merriam Co., 1963.
West, B. W., Professionalism and Accounting Rules, Routledge, 2003.

279