OBJECTIVES OF FINANCIAL STATEMENTS
Oscar S. Gellein Partner, Executive Office
Presented before the Canadian Institute of Chartered Accountants, Toronto-September 1973
To inquire today into the objectives of financial statements raises the question
of whether financial reporting has been without purpose since its founding,
which some would mark from Pacioli's efforts in the fifteenth century. The absence of articulated objectives all these many years should not dismay us. Implicit objectives often guide actions effectively, even if we cannot state them simply. Today's question is whether the objectives once understood and clearly accepted as appropriate for financial reporting still fit. My belief is that they are not wholly suitable for present information needs.
We live in a world of accelerating criticism and complaint. The inquiry into financial statement objectives with which I have been associated was born in a swirl of controversy and complaint. Some of the complaint grew out of aversion to change. Change and the instinct to resist it seem always to have been a part of the human condition. Fast change leads to consternation for some, indignation for others, shock for still others—but to hope for a few. Changes in business have been outrunning changes in accounting. The result has been widespread criticism of financial reporting—paradoxically, from both those who press for change and those who resist it. Some of the criticisms
are valid, some are not. We should sort them out, deal with the substantive
ones and not waste time on the frivolous ones.
Accounting has not had a very good structure for sorting things out. One of the reasons for this, in my view, is that the structure continued to be governed by the objectives of historic venture accounting long after the needs for that accounting were joined by new, important ones. Stewardship in a narrow sense has remained supreme as an objective. Stewardship now should be expanded to cover accountability to both the owners of an enterprise and those making economic decisions based on its financial statements. Stubborn adherence to a narrow view of stewardship may have been the root cause of a lag in financial reporting.
Some observers have said that the principal need is a theoretical structure that is mindful of uses made of financial statements but not governed by