Improving Accounting Reliability: Solvency, Insolvency, and Future Cash Flows

Improving Accounting Reliability: Solvency, Insolvency, and Future Cash Flows

Improving Accounting Reliability: Solvency, Insolvency, and Future Cash Flows

Improving Accounting Reliability: Solvency, Insolvency, and Future Cash Flows

Synopsis

The traditional model for financial statements is so unreliable, maintains Kirkegaard, that even the most meticulously prepared statement cannot give a true and fair view of the financial health of a business. Statements should be dynamic, current, complete, and comprehensible. Based on strong and well-founded criticism of the traditional accounting model, with its guiding concepts of "profit" and "owners' equity," Kirkegaard proposes a model that concentrates on a company's "solvency" or "insolvency" at a given time. With that, it becomes possible to employ modern information technology to predict future liquidity problems early on, thus helping to limit or prevent future losses. A challenging, provocative work for professional accountants and their academic colleagues.

Excerpt

In the summer of 1993 during a visit to Denmark, I had one of those "once-in-a-lifetime" experiences of making an exciting discovery. I was browsing through the public library in the town of Hillerød when I came across Henning Kirkegaard book Det Dynamiske Regnskab, which has since been given the English title Improving Accounting Reliability.

Here was a book written in the passionate conviction that accounting not only could change but must change--its focus should move from the "past" to the "future." Moreover, the book was written in a style hoping to bridge the gap between the professional and the user of financial information. Kirkegaard also sought to lay a solid foundation for his new approach by using concepts of Karl Popper from the philosophy of science.

Breaking with tradition, the book comes as a breath of fresh air to stimulate thoughtful debate and critical examination of propositions taken for granted. It invites the reader to participate in making judgments as to the validity of the new views in an interdisciplinary setting.

While I wish that Kirkegaard might have been less polemic in his presentation, that style makes for more interesting reading. Even when he presents his views, with which you may not agree, you are the final judge.

Yes, the book is one of the most innovative and provocative works on accounting in this century. And while it is only a beginning, it could be the start of a fruitful and productive trend of thought that will invigorate, rejuvenate and strengthen the accounting profession, as accounting becomes more relevant to a larger public.

C. Torben Thomsen
Fresno State University, California . . .

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