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Hicksian Income in the Conceptual Framework

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  • MICHAEL BROMWICH
  • RICHARD MACVE
  • SHYAM SUNDER

Abstract

In seeking to replace accounting conventions by concepts in the pursuit of principles‐based standards, the FASB/IASB joint project on the conceptual framework has grounded its approach on a well‐known definition of income by Hicks. We welcome the use of theories by accounting standard setters and practitioners, if theories are considered in their entirety. Cherry‐picking parts of a theory to serve the immediate aims of standard setters risks distortion. Misunderstanding and misinterpretation of the selected elements of a theory increase the distortion even more. We argue that the Boards have selectively picked from, misquoted, misunderstood and misapplied Hicksian concepts of income. We explore some alternative approaches to income suggested by Hicks and by other writers, and their relevance to current debates over the Boards' conceptual framework and standards. Our conclusions about how accounting concepts and conventions should be related differ from those of the Boards. Executive stock options (ESOs) provide an illustrative case study.

Suggested Citation

  • Michael Bromwich & Richard Macve & Shyam Sunder, 2010. "Hicksian Income in the Conceptual Framework," Abacus, Accounting Foundation, University of Sydney, vol. 46(3), pages 348-376, September.
    • Handle: RePEc:bla:abacus:v:46:y:2010:i:3:p:348-376
    DOI: 10.1111/j.1467-6281.2010.00322.x
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    1. Frank L. Clarke, 2010. "‘Alas Poor Hicks’, Indeed! Sixty Years of Use and Abuse—Commentary on Bromwich et al," Abacus, Accounting Foundation, University of Sydney, vol. 46(3), pages 377-386, September.
    2. Richard Barker & Anne McGeachin, 2015. "An Analysis of Concepts and Evidence on the Question of Whether IFRS Should be Conservative," Abacus, Accounting Foundation, University of Sydney, vol. 51(2), pages 169-207, June.
    3. Tsunogaya Noriyuki & Okada Hiromasa & Patel Chris, 2011. "The Case for Economic and Accounting Dualism: Towards Reconciling the Japanese Accounting System with the Global Trend of Fair Value Accounting," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 1(2), pages 1-56, October.
    4. Macve, Richard, 2021. "Pacioli’s Lens: Through a glass, darkly," LSE Research Online Documents on Economics 112170, London School of Economics and Political Science, LSE Library.
    5. Frederico Botafogo, 2019. "The Syntax of the Accounting Language: A First Step," Papers 1906.10865, arXiv.org.
    6. Shizuki Saito, 2011. "Accounting Standards and Global Convergence Revisited: Social Norms and Economic Concepts," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 1, pages 105-117, December.
    7. Glover Jonathan, 2014. "Have Academic Accountants and Financial Accounting Standard Setters Traded Places?," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 4(1), pages 17-26, February.
    8. Richard Macve, 2010. "The Case for Deprival Value," Abacus, Accounting Foundation, University of Sydney, vol. 46(1), pages 111-119, March.
    9. Macve, R.H., 2015. "Fair value vs conservatism? Aspects of the history of accounting, auditing, business and finance from ancient Mesopotamia to modern China," The British Accounting Review, Elsevier, vol. 47(2), pages 124-141.
    10. John Christensen, 2010. "Conceptual frameworks of accounting from an information perspective," Accounting and Business Research, Taylor & Francis Journals, vol. 40(3), pages 287-299.
    11. Hatherly, David & Kretzschmar, Gavin, 2011. "Capital and income financialization: Accounting for the 2008 financial crisis," Accounting forum, Elsevier, vol. 35(4), pages 209-216.
    12. Braun Eduard, 2019. "The Ecological Rationality of Historical Costs and Conservatism," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 9(1), pages 1-30, March.
    13. Saito Shizuki & Fukui Yoshitaka, 2019. "Whither the Concept of Income?," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 9(1), pages 1-16, March.
    14. Macve Richard, 2013. "“Trading Places”: A UK (and IFRS) Comment," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 4(1), pages 27-40, April.
    15. James Cataldo, 2015. "A framework for assessing comprehensive income risk exposure over varying time horizons," Review of Quantitative Finance and Accounting, Springer, vol. 45(4), pages 819-844, November.
    16. Alexandre Rambaud & Jacques Richard, 2015. "Towards a finance that CARES," Post-Print halshs-01260075, HAL.

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