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Accounting and Finance: Complementarity and Divergence

Author

Listed:
  • Biondi Yuri

    (IRISSO, CNRS, University Paris Dauphine PSL, Place Marechal Lattre Tassigny, Paris, France)

Abstract

Penman (2023. Accounting for Uncertainty. Accounting, Economics, and Law: A Convivium) develops a conceptual framework which reconciles accounting and finance in view to provide information for financial investment. His framework is based upon resolution of uncertainty over expectations as a convenient basis for accrual accounting. In this context, accrual accounting can be interpreted as a convenient instrument to protect the corporate capacity to generate future earnings on which the expected financial value is based upon. However, in order to fulfil this control function, accounting applies an additive process (simple return), while financial valuation imposes a multiplicative process (compound return) over the invested financial capital. This divergence between accounting and finance enables disentangling business profit – as determined by accounting – from money interest and ownership rent, paving the way to a theory of the business firm based upon its accounting structure, and enabling measures of financial performance consistent with this divergence.

Suggested Citation

  • Biondi Yuri, 2024. "Accounting and Finance: Complementarity and Divergence," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 14(3), pages 329-337.
    • Handle: RePEc:bpj:aelcon:v:14:y:2024:i:3:p:329-337:n:1006
    DOI: 10.1515/ael-2023-0132
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    More about this item

    Keywords

    accrual accounting; financial valuation; capital budgeting; theory of the firm; measures of financial performance; simple return rate;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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