The Accounting Representation of the Enterprise Entity: An Historical Perspective

Accounting scholars, standards-setters and preparers have been confronted with a new financial reporting paradigm that has displaced the traditional focus on accountability of the enterprise entity to its stakeholders (including shareholders) and on the general interest. This focus was common to both static and dynamic accounting approaches in continental Europe, as well as to both proprietary and entity accounting perspectives in North America. This chapter develops three conceptual and practical lessons driven from a comparative analysis of traditional and modern accounting paradigms: (i) the enterprise entity should be distinguished from its markets of reference; (ii) fair value and discounting do not belong to accounting; and (iii) accounting should not follow the market, but the market pricing process may take advantage from an accounting lighthouse. Illustrative examples are then taken from the international financial reporting standards concerning intangibles, goodwill and financial liabilities. According to this analysis, the market-based view on accounting is flawed and undermines accounting suitable connection with law and economics of the business firm as an enterprise entity.