PRESENTED BY:

ADIMA-OKOJIE DERRICK (FAMASS/ACC/01700242)

DOGBO ENAHORO DAVID (FAMASS/ACC/01700245)

ALALE SIMON PETER (FAMASS/ACC/01700258)

COURSE CODE: ACC413

COURSE TITLE: ACCOUNTING THEORY

LEVEL: 400LEVEL

DEPARTMENT: ACCOUNTING

LECTURER: DR. GODWIN OHIOKHA

SCHOOL: EDO STATE UNIVERSITY UZAIRUE (EDSU)

TOPIC: FAIRNESS, DISCLOSURE AND FUTURE TRENDS IN

ACCOUNTING

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ABSTRACT
This term paper attempts to evaluate and explain fairness, disclosure and future
trends in accounting. It also tends to explain the theory of justice in relation to
fairness and disclosure in accounting. New accounting disclosures will be stated
and explained as well.

All that will be presented in this term paper will be done in a brief and
understandable manner.

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 Fairness in Accounting

This is generally associated with the measurement and reporting of information in

an objective and neutral way. It also implies that accounting statements have not
been subject to undue influence or bias.

Unfortunate Consequences of the Fairness Principle

a. A failure to rely on concepts of justice that dedicate instead a fairness

in distribution.
b. A failure to expand the scope of the disclosure in financial statements
beyond conventional financial accounting information towards a
fairness in disclosure.
c. Creates flexibility in income and earnings smoothing.
d. Creates a climate for fraudulent practices.

Williams’ Definition of Fairness

Williams characterized fairness as an evaluation process with the

following attributes:
a. The evaluator is aware of the conditions that any consequences
of his or her actions will be judged as fair or unfair.
b. The evaluation attempts to adopt a perspective of impartiality.

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 Fairness in Distribution

According to Williams:

• Decision usefulness (the principle of organizing accounting research and

practice) is incomplete, while accountability at least possesses fairness as an
inherent property.
• The concern of accounting with efficiency makes accounting’s fairness
judgment implicit, not absent.

Fairness as a Moral Concept of Justice

Rawls’ theory of justice is an egalitarian one under which people chooses two
principles:

1. Each person is to have an equal right to the most extensive basic

liberty compatible with a similar liberty for others.
2. Social and economic liberties are to be arranged so that they are both:
• to everyone’s advantage
• attached to positions and offices open to all

Fairness in Accounting According to Rawls

• Rawls calls for an accounting choice that will eventually lead to solutions
that are neutral, fair and socially just.
• Rawls suggests expanding the role of accounting in the creation of just
institutions and the definition of the social minimum.
• Expanding accounting’s role in creating just institutions would lead to the
elimination of those aspects of the social world and accounting that seem
arbitrary from a moral point of view.

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 Nozick’s Theory of Justice

• Nozick argues that theories such as Rawls’, which are based on the patterned
and end-state principles, violate people’s rights and exclude the entitlement
principle
• According to Nozick:
– A person who acquires a holding in accordance with the principle of
justice in acquisition is entitled to that holding.
– A person who acquires a holding in accordance with the same
principle from someone else entitled to that holding is also entitled to
it.
– No one else is entitled to a holding except through the above
applications.

Fairness in Accounting According to Nozick

• Nozick’s is a libertarian theory of distribution based on justice in acquisition

and transfer.
• Nozick’s view sees distributive justice as relying on a free-market
mechanism, and does not allow for dealing adequately with fairness as a
distributive function.

Gerwith’s Theory of Justice

• Gerwith’s theory sees rights to freedom and well-being as generic,

fundamental and universal.
• Gerwith asserts that every agent logically must acknowledge certain generic
obligations, including:
– ‘he ought to refrain from coercing and from banning his recipients’
– ‘he ought to assist them to have freedom and well-being [when there
is] no comparable loss to himself’
• Gerwith’s Principle of Generic Consistency (PGC) is: ‘act in accord with the
generic rights of your recipients as well as yourself’.

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 Fairness in Accounting According to Gerwith

• Gerwithian principles demand recognition of the rights of all those affected

by the activities of the organization.
• Gerwith’s view supports the emphasis in value-added reporting to report the
total return of all members of the ‘production team’, such as shareholders,
bondholders, suppliers, labour, government and society.

Fairness in Disclosure

• The fairness in disclosure principle calls for an expansion of conventional

accounting disclosures to accommodate all other interest groups in addition
to investors and creditors.
• Bedford called for the development of new tools under diverse new
disciplines to provide management and decision-makers with useful
information.

Characteristics of Disclosure to be Expanded

• The scope of users should expand to include public groups.

• The scope of users should expand to providing for inter-company.
Coordination, meeting specific user information needs and developing
public confidence in the firm’s activities.
• The type of information disclosed should expand to reveal both internal
activities and the environmental setting of those activities of a
socioeconomic nature.
• Measurement techniques should expand to encompass the total management
science area.
• The quality of disclosure should expand to offer improved relevance for
specific decisions.
• Disclosure devices should expand to encompass multimedia disclosures
based on the psychology of human communications.

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 Purposes of Disclosure

 To describe recognised items and to provide relevant measures of

those items other than the measures in the financial statements.
 To describe unrecognised items and to provide a useful measure of
those items.
 To provide information to help investors and creditors assess risks and
potentials of both recognised and unrecognised items.
 To provide important information that allows financial statement users
to compare within and between years.
 To provide information in future cash inflows or outflows.
 To help investors assess return on their investments.

Required Financial Statement Disclosures – an Analysis

1. The most frequently required disclosures relate to amounts recognised in the

financial statements, particularly to disaggregating them and providing
relevant measures other than the measure in the financial statements –
disaggregation of recognised amounts represents 26 per cent of all required
disclosures.
2. Six subjects – stockholders’ equity, leases, pensions, income taxes, other
post-retirement employee benefits and commitments and contingencies –
account for 45 per cent of all required disclosures; five standards – SFAS
no’s 15, 87, 88, 106 and 109 – account for 28 per cent.
3. Few disclosures explicitly provide information on future cash inflows or
outflows.
4. Few disclosures provide measures of unrecognised items.

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5. Disclosure requirements have increased over time; few have been
eliminated.

New Accounting Disclosures

New accounting disclosures under the principle of fairness in disclosure are:

• value-added reporting
• employee reporting
• human resource accounting
• social accounting and reporting
• budgetary information disclosures
• cash flow accounting and reporting

Value-added reporting
‘Value added’ is the increase in wealth generated by the productive
use of the firm’s resources before its allocation among shareholders,
bondholders, workers and the government.

Employee reporting
Employee reporting has been necessitated by the emergence of
employees and unions as potential users of accounting information.
Examples of headings for an employment report are:
• number of people employed (analysed in various ways)
• location of employment
• age distribution of permanent workforce
• hours worked during the year (analysed)
• employee costs
• pension information
• education and training (including costs)

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 • recognised trade unions
• Additional information (race relations, health and safety statistics etc.)
• employment ratios

Social accounting and reporting

Ramanathan defines social accounting as:
– ‘the process of selecting firm-level social performance variables,
measures and measurements procedures; systematically developing
information useful for evaluating the firm’s social performance and
communication of such information to concerned social groups, both
within and outside the firm’.

Budgetary information disclosure

• Accountants and non-accountants alike have recommended that forecast
information be incorporated into financial statements.
• One objective of financial reporting set forth in the Trueblood Report
supports such disclosures:
‘An objective of financial statements is to provide information useful
for the predictive process. Financial forecasts should be provided
when they will enhance the reliability of users’ prediction’.

Cash flow accounting and reporting

Cash flow accounting is defined as the recording not only of cash
receipts and disbursements of the period, but also of the future cash
flows owed to or by the firm as a result of selling and transferring the
title to certain goods (the accrual basis of accounting).

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 CONCLUSION

In conclusion, fairness, disclosure and future trends in accounting is all about

financial transactions being treated fairly as they should be and all significant
information is sufficiently disclosed in the financial statements to ensure that the
users are not mislead. The fair view mainly focuses on the ways how the quality of
the information in the financial statements is. It also helps in preventing loss and
misuse of assets. Potential investors can study available accounting policies to
decide if they will invest in the business or not.

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 Reference
https://www.fdocuments.com/chapter-7/fairness-disclosure-and-future-trends-in-accounting/

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