The Accounting Historians Journal Vol. 17, No. 2 December 1990
Richard Vangermeersch THE UNIVERSITY OF RHODE ISLAND
and Mark Higgins THE UNIVERSITY OF RHODE ISLAND
THE NATURAL BUSINESS YEAR: A SHIFT FROM PROACTIVE TO REACTIVE BEHAVIOR BY ACCOUNTANTS
Abstract: There has been a noticeable decline in accounting publica-tions and research on the natural business year since the early 1960's, the same time that the AICPA Committee on Natural Business Year ended. Accountants and accounting institutional bodies up to that date had taken a strongly proactive stance on the topic. Since then, and especially since 1970, almost all of the literature on the natural business year has been reactive to IRS pronouncements. This article traces these changes from proactive to reactive behavior, and from financial/managerial accounting considerations to taxation issues. The article ends with support for accountants to be proactive once again on the natural business year and to regain the vitality of the financial/ managerial accounting literature on the topic.
The recent absence of the Natural Business Year (NBY) as a topic in a leading intermediate accounting text indicated to the authors of this article that a lack of theoretical interest existed for this topic.1 This apparent lack of theoretical interest seemed sig-nificant in light of the United States Congress mandating individu-als and "flow through" entities to report on a calendar year basis in the Tax Reform Act of 1986 (TRA86). This study was under-taken to ascertain why interest in a once highly-touted financial/ managerial accounting topic apparently declined and to try to draw some inferences from this apparent decline to the significant changes caused by TRA86.
1Pinkerton [1930, p. 1056] provides a very good working definition of the NBY:
The natural business year, for any business enterprise, is that period of twelve consecutive calendar months which coincides with the annual cycle of the operations of the enterprise. Generally speaking, the natural business year for