In recent years, press articles have contained many criticisms of financial statements. Such criticisms are, or ought to be, the subject of concern to accountants. They range from comments about the accounting for a transaction to that of an enterprise or even an entire industry. Troublesome as these criticisms are, a more disturbing form of commentary has become increasingly common. It doesn't address specifics but rather, in matter-of-fact language, presumes that everyone knows financial statements are unreliable. References are made to manipulation," "accounting gimmickry," "accounting alchemy," and "accounting prestidigitation." A very respected publication stated, "Wall Street knows better than to take reported profits at their face value," and later in the same article, "... the profits that companies report to their shareholders can be almost as misleading as an Intourist guide to Russian standards of living."

The relevance of present financial statements is also challenged by knowledgeable members of the profession, for example, in a recent article in which the present chairman of the AICPA reported on the findings of its future issues committee.

These observations could suggest any number of actions, but certainly one if them is introspection. Why don't financial statements have the respect they once had? Society and its institutions are accustomed to growth and progress and one might expect that financial statements are providing more value to users today than in the past.

Dramatic changes have taken place over the decades in education and communication, in financial theory and statistical techniques and in financial markets of all kinds. All of these changes are relevant to financial accounting because they have altered the training and skills of accountants as well as the quantity and timeliness of information available to accountants.

Why isn't financial accounting more useful today? Why has it not kept pace with the changes that have taken place in other parts of society? A strong case can be made that financial accounting has failed to use its new skills and the knowledge and information developed in those other fields, that it has resisted change and innovation. The challenges to the continuing relevance of financial statements are, therefore, predictable and understandable.

ACCOUNTANTS MEASURE

Accounting has been defined in a publication of the American Accounting Association as "the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information." That makes an accountant one who identifies, measures and communicates economic information. It is a requisite characteristic of every profession that its members assume the responsibility to maintain competence and proficiency, to remain current and abreast of the relevant changes in their professional environments. it is implicit, therefore, that the accountant of any era employ the skills, training, knowledge, data and information that is then available.

If financial accounting is to avoid becoming irrelevant, changes and improvements are necessary in the basic activities of the accounting discipline, identifying," measuring," and "communicating." It is not enough to do what was possible, expected and accepted in the past.

The most distinctive of the three activities encompassed by the definition of accounting is measuring. Measuring is also the area in which the most resistance to change is found. It is hardly a coincidence, therefore, that the lack of current measurements is also the subject of many complaints about lack of relevance of financial statements. The advances in other fields have made possible many measurements that are not presently being carried out by financial accountants.

IMPROVEMENTS POSSIBLE

The improvement of financial statement relevance requires putting those advances to use to improve accounting measurements. Changes in communication permit elimination of the delays in consolidating foreign subsidiaries, (now ranging up to three months), permitting more timely measurements.

Changes in management information systems, the amount of information that is available, and the data processing equipment that is available to manipulate it, permits reduction or elimination of the use of multiple accounting methods within the same enterprise. Changes in information systems also permit more discrete classifications of assets and liabilities, facilitating more frequent and more accurate measurements for many of those classifications.

Changes in education, financial theory, and markets permit many more current value measurements than are in use today. Many accounting conventions in use today were adopted, at least in part, because of the impracticality of making periodic, reliable measurements. These conventions require reexamination today because of significant changes in the environment. A good illustration is the accounting for financial instruments that are now usually accounted for at historical cost, adjusted for discounts or premiums. In recent years direct markets have developed for many items seldom sold or transferred previously and these markets continue to develop, providing more reliable information about volume and prices. At the same time indirect markets for other financial instruments have developed through the use of asset-backed securities. Markets for these securities grow constantly and provide better information about the value of the underlying financial instruments. But the availability of more and better information adds nothing to the relevance of financial statements until accountants make measurements with that information and include those measurements in financial statements for the benefit of users.

Change is nearly always inconvenient, disruptive, and uncomfortable whether it involves one's residence, standard of living or occupation. But change is essential and inevitable. Institutions and organisms either respond to changing environments or they languish and disappear. The accounting discipline is no exception, and financial accounting must constantly be receptive to change if it is to continue to be relevant; if it becomes irrelevant it will not be needed, something else will supplant it and be supplied by someone other than accountants. Avoiding this obvious, ominous threat to financial accountants requires change, and quickly. But what is required is not ominous. What is required is only that financial accountants carry out, to the best of their abilities, those acts for which they assume responsibility by identifying themselves as accountants. Unfortunately, there is a wide gap between what the discipline of accounting requires of accountants and what accountants are willing to do.

MEASURE TO MANAGE

The benefits of better and more current measurements are not theoretical. They are real and evident in all aspects of financial information use, whether external--to extend credit, to buy or sell securities or to vote on a proposed transaction--or internal--to enter into a contract, to continue or discontinue manufacturing a product, or to offer a compensation package.

Postretirement health care plans have changed markedly as managers began to measure the estimated liability for earned but unrecognized future benefits and understand the consequences of existing contracts. Many articles have appeared during the last few years illustrating the improved decision making that has resulted from cost accounting information based on more specific measurements of events rather than on broad based allocations of aggregate data.

Compensation consultants have pointed out that without valuing stock options, rational decisions cannot be made about the relative worth and cost of alternative compensation packages, some including options and some without. Clearly managing and measuring are related; we manage what we measure, or, inversely, we measure what we manage.

MEASURE WHAT YOU CAN

Of course there are assets and liabilities that present extraordinarily difficult measurement problems, just as there are those that present few, if any, problems. But procedures necessary to cope with problem areas should not control procedures used in areas in which there are no problems. The accounting discipline requires that accountants measure what they can, when they can and communicate the resulting information to maximize the ability of users of financial statements to make informed judgments, rather than to deny information on the pretense that because some information is unavailable none is available.

It is time for accountants to demonstrate progress in financial accounting as progress has been demonstrated in other fields. Accountants will demonstrate that progress as they demonstrate their ability to measure more items, more frequently and more accurately.

An accountant who cannot measure is like a carpenter who cannot build and a physician who cannot diagnose illness--irrelevant and misnamed

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