An Australian Perspective
Edited by Mohamed Ariff, John H. Farrar and Ahmed M. Khalid
Chapter 14: When History is Ignored, Business Black Swans and the Use and Abuse of a Notion
Graeme Dean and Frank Clarke 14.1 WHEN HISTORY IS IGNORED Historical enquiry reveals how ideas mutate. This account of the ideas underpinning how fair value accounting (FVA) drifted into corporate financial reporting shows that a primary lesson of business history is that we ignore history at our peril. Frequently we encourage the recall of history for possibly the wrong reason – to supposedly ‘learn lessons’ regarding what we might or might not repeat. It might be more fruitful to use history to gain insight into the development of the ideas (good and bad) that delivered us to where we are today. The case of fair value is shown to have drifted from the basis for a specific-purpose calculation into a general application in accounting statements of financial position and financial performance. The markto-market dispute during the current global financial crisis has nurtured further mutation of its FVA predecessor. What originally arose as an attempt to disclose a present financial state or condition, is being denied by many in the name of the alleged virtue of hiding it. Doing so contradicts what history tells us has been the focus from when fair value accidentally ‘drifted’ into the accounting for adaptive companies. Our analysis also highlights the theme of the historical enquiry, which shows aptly how accounting is conducive to politicization – an easy victim of interested parties’ special pleading, corrupting its technology function primarily because it is inconvenient to have accounting data tell it how it is. 14.1.1 Business Black Swans and the...
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