Utility and Accounting Principles.

Abstract Accounting is a utilitarian function in our economic society. Accounting reports are sought as sources of information to help people make decisions about the entities for which the reports were prepared. Logically, then, the principles underlying those reports should be selected so as to facilitate decision making by the users of the financial statements. The search for accounting principles should be decision oriented. It should begin with an identification of the uses to which accounting data are being put and logically might be put. Both the potentialities and the limitations of accounting should be recognized. Accountants should not balk at reporting market values if these are found to be useful for decision making and are measurable. On the other hand, accountants should not be prodded into providing forecasts and reporting them as verifiable facts. Utility is both an approach to the formulation of accounting principles and a criterion for the evaluation of principles. An attempt was made here to test the principle of historical cost against the utility criterion, and the conclusion that this principle is not useful for decision making seemed clear. Similarly, the concept of uniformity of accounting principles was examined and found to be useful. Such tests should be made and reviewed regularly. As circumstances and business practices change, it is possible that the content and format of useful accounting reports will change. The need for useful information, however, will never change. It is the continuing challenge which a dynamic profession must constantly strive to meet.