Reporting Entity Size and the Need for Accounting Information

By Calderon, Thomas G. | Akron Business and Economic Review, Spring 1990 | Go to article overview

Reporting Entity Size and the Need for Accounting Information


Calderon, Thomas G., Akron Business and Economic Review


Reporting Entity Size And The Need For Accounting Information(*)

Differentiation in financial reporting on the basis of size and ownership characteristics has been an accounting policy issue for several years. Supporters of differentiation argue that there should be differences in accounting standards based on size and/or ownership characteristics in order to minimize the impact of "standards overload." The "standards overload" problem is typified by numerous accounting standards that are complex, costly to implement, and provide relatively insignificant benefits to small and/or private companies. Although the debate on "standards overload" emerged in the early 1970's, it continues to be an area of concern in the profession[4, 16, 22, 23]. Several professional committees have examined the problem and have made numerous recommendations that, to a large extent, support differentiation in financial reporting as a method of dealing with the issue.

While the incidence of a "standards overload" is widely acknowledged, there is considerable resistance to differentiation as a solution to the problem. One reason for such resistance is that key parties[e.g., 8, 9, 17] in the debate contend that user needs for accounting information are robust to variations in size and ownership characteristics of reporting entities. If this is, in fact, the case, there can be little justification for differentiation. On the other hand, the FASB's Statements of Financial Accounting Concepts (SFAC) 1 and 2 would justify differentiation to the extent that user needs are affected by variations in the size and ownership characteristics of reporting entities[8, 9, 13]. Thus, differentiation in financial reporting involves, among other things, a relevance issue that requires an understanding of the impact of size and ownership characteristics on the need for accounting information[11].

This article reports the results of a quasi-experiment that examines the association between the need for selected financial statement items and the size and ownership characteristics of a reporting entity. The research focuses

on the information needs of commercial loan officers in a lending decision. However, bank size and the behavior response repertoire of the user are incorporated into the research model in order to account for these sources of variability in user perceptions of financial statement information.

The need for thirteen financial statement items is examined. These items are divided into two categories, "control" and "key" items, in order to incorporate the extant philosophy in financial reporting that postulates that certain disclosures are important for all companies irrespective of their characteristics. Accordingly, the "control" items include disclosures that (a) have generated little controversy in the "standards overload" debate and (b) are perceived (by loan officers) to be just as important in evaluating a loan application for a small company as they are in evaluating a loan for a large company. These items, which are used for validation purposes, were identified via a pilot study and a series of interviews with commercial loan officers.

The "key" items, on the other hand, are those that proponents of differentiation have identified as being more complex and less relevant for small and closely-held companies. Presumably, proponents of differentiation view the need for these items as being affected by variations in size and ownership characteristics. Indeed, efforts toward differentiation in regard to some of these items already exist in financial reporting. In order to incorporate existing differentiation practices, the key items are further sub-divided into (1) a differentiated set made up of items for which differentiation has been formally implemented in accounting standards and are, therefore, not required in the financial statements of private companies (e.g., SFAS 21 and SFAS 33 [superseded]) and (2) a non-differentiated set made up of items for which differentiation has not been implemented (hereafter referred to as non-differentiated items). …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Reporting Entity Size and the Need for Accounting Information
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.