The FASB Approach to Income Determination: Is It Viable?

A question which has been debated by the accounting profession for decades is whether there exists a single set of correct rules for use in reporting 'true income' which would enable comparability in reporting for all firms to be achieved. Those who believe a 'true income' figure does exist, advance their position by attempting to reduce choices among alternatives.Not infrequently the debate centers around the matching principle, i.e., the timing of recognition of an expense. Accounting has its basis in the accrual system. It does not necessarily convey cash inflows and outflows of the current period so much as it seeks to serve as a predictor of future cash flows. Matching expense via systematic and rational allocation to related revenues when they are realized is appropriate and acceptable in the accrual system. Thus the question often arises as to whether management should capitalize a given item with amortization over a specified life or whether management should charge the entire item to income for the current period (immediate recognition). This argument is characterized as the debate over existence of a 'true income' figure on a per year basis.