From Chaos to Principles: Can Financial Accounting be Fundamentally Transformed?

After posting my commentary on FAS 157, which took more time to put together than I’m willing to admit, I resumed reading The End of Poverty, by the Jeffrey Sachs. I just finished the chapters about his experiences in helping Poland and Bolivia end hyperinflation and transform their economies.  Of lessons learned from these experiences, he writes:

“…I learned once again about the importance of a basic guiding concept for broad-based economic transformation, a concept powerful enough to frame the great debates in a society and give guidance to millions of individuals about the changes ahead.” (p. 129).

I found this statement to be particularly apropos to the place we find ourselves post Enron and SOX, and on the cusp of plunging into IFRS.  A broad-based transformation of accounting is very much needed, but the changes thus far in reaction to the calamities of five years ago bear little relation to Sachs’ recipe for successful transformation.  Where is the ennunciation of basic principles that can transform accounting from a patchwork of compromises created only to pacify special interests–and ripe for abuse?

Principles-based accounting is the only acceptable answer, but neither the SEC, FASB nor the IASB appear to be particularly motivated to do much more than pay lip service to the mere idea of principles, much less set them down on paper.

Ah, well, it’s only accounting.  At least they’re not the ones in charge of finding a cure for poverty.