An Evaluation of External Reporting Practices: A Report of the 1966-68 Committee on External Reporting.

Abstract This article highlights the report of the Committee on External Reporting of the American Accounting Association. In accordance with the general approach as outlined in the preceding section, the first step in the evaluation of external accounting practices was the development of a normative investor's valuation model. This model had to include the variables and interrelationships which should be considered by an investor. In order to limit the scope of the analysis, the following valuation model relates primarily to long-term investors in equity and fixed income securities, that is investors who intend to retain their positions for relatively long periods. This does not necessarily imply that the model is of no value to the short-term investor. However, short-term investors are generally more interested in changes in security prices than in cash distributions by the firm; and short-term fluctuations in security prices are frequently more closely related to external factors in the economy than to expectations regarding the individual firm. This condition makes accounting data of less assistance to short-term investors than to those interested in taking a long-term position in corporate securities.