Zeff 1978
THE RISE OF ECONOMIC CONSEQUENCES
The impact of accounting reports on decision making may be the most challenging accounting issue of the 1970s. by Stephen A. Zeff Since the 1960s, the American accounting profession has been aware of the increasing influence of "outside forces" in the standardsetting process. Two parallel developments have marked this trend. First, individuals and groups that had rarely shown any interest in the setting of accounting standards began to intervene actively and powerfully in the process. Second, these parties began to invoke arguments other than those which have traditionally been employed in accounting discussions. The term "economic consequences" has been used to describe these novel kinds of arguments. By "economic consequences" is meant the impact of accounting reports on the decisionmaking behavior of business, government, unions, investors and creditors. It is argued that the resulting behavior of these individuals and groups could be detrimental to the interests of other affected parties. And, the argument goes, accounting standard setters must take into consideration these allegedly detrimental consequences when deciding on accounting questions.* The recent debates involving foreign currency translation and the accounting for unsuccessful exploration activity in the petroleum industry have relied heavily on economic consequences arguCopyright © 1978 by Stephen A. Zeff. *Ed. note: For the opinion of an accounting standard setter, see Oscar S. Gellein 's article in Statements in Quotes, p. 75.
ments, and the Financial Accounting Standards Board and the Securities and Exchange Commission have become extremely sensitive to the issue. ' The economic consequences argument represents a veritable revolution in accounting thought. Until recently, accounting policy making was either assumed to be neutral in its effects or, if not neutral, it was not held out to the public as being responsible for those efEects. Today, these
The impact of accounting reports on decision making may be the most challenging accounting issue of the 1970s. by Stephen A. Zeff Since the 1960s, the American accounting profession has been aware of the increasing influence of "outside forces" in the standardsetting process. Two parallel developments have marked this trend. First, individuals and groups that had rarely shown any interest in the setting of accounting standards began to intervene actively and powerfully in the process. Second, these parties began to invoke arguments other than those which have traditionally been employed in accounting discussions. The term "economic consequences" has been used to describe these novel kinds of arguments. By "economic consequences" is meant the impact of accounting reports on the decisionmaking behavior of business, government, unions, investors and creditors. It is argued that the resulting behavior of these individuals and groups could be detrimental to the interests of other affected parties. And, the argument goes, accounting standard setters must take into consideration these allegedly detrimental consequences when deciding on accounting questions.* The recent debates involving foreign currency translation and the accounting for unsuccessful exploration activity in the petroleum industry have relied heavily on economic consequences arguCopyright © 1978 by Stephen A. Zeff. *Ed. note: For the opinion of an accounting standard setter, see Oscar S. Gellein 's article in Statements in Quotes, p. 75.
ments, and the Financial Accounting Standards Board and the Securities and Exchange Commission have become extremely sensitive to the issue. ' The economic consequences argument represents a veritable revolution in accounting thought. Until recently, accounting policy making was either assumed to be neutral in its effects or, if not neutral, it was not held out to the public as being responsible for those efEects. Today, these