Changing Concepts of Liabilities and the Emergence of Measurement Problems

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The results of my research during the period for which I received the Grant-in-Aid for Scientific Research (C) are as follows :First, the determining factors in recognition of liabilities are (1) the division between the liability and capital, (2) on-balancing of off-balanced items.Problem (1) is whether accounting concepts are looked at from the point of assets/liabilities (balance sheet centered view) or the revenues/expenses (income statement view) in determining what accounting liability is. In case of the revenue/expense view, credit items which are excluded from periodical income determination must belong to liability category. Therefore, the liability category is likely to be seen as excess baggage. In case of asset/liability view, what belongs to the liability category is determined first (in this case, the capital category is likely to be seen as a secondary phenomenon). The main stream of recent accounting theory has changed from the revenue/expense view to the asset/liabilit … More y view. As a result, the recognition of accounting liability has changed. Future accounting concepts should be refined based on the asset/liability view.Problem (2) is that what used to be off-balance has recently been being on-balnaced. The reasons for this change are both changes in the main stream of accounting theory as stated above and the changes in investors valuation of firms. When investors evaluate a firm as the object of investment, they tend to give value not only to return on investment, but also to future risk of the firm. Therefore, lease obligation, pension liability, post-retirement health care liability, and other obligations which used to be off-balance, became on-balanced. The more future events accounting infomation introduces, the more relevant it becomes, the less reliable. One solution that must this difficult problem would be to divide income into distributable income and investment index income, because distributable income is fixed and needs to be more reliable while investment index income is concerned about the future and needs to be more relevant. Less