Recognition: An Information Content Perspective

Abstract

This essay offers a synthesis of the varied accounting literature on recognition. First, in a review of the historical evolution of accounting thoughts, two debates on accounting measurements stand out: historical cost as the basis for asset valuation and realization as the basic test for income determination. These debates have specific implications for the recognition issue. Second, I examine the shift from the traditional measurement perspective to an information content perspective in both rhetorical policy debates and academic accounting thoughts. Under the information content perspective, the (strategic) decision-making context becomes particularly important. Last, I advocate information content as a combining perspective, not as a replacement of the measurement perspective. In particular, I draw attention to the recent academic studies with an explicit or implicit theme of recognition. These studies combine modern information economics with the accounting measurement structure. This line of research has the potential to provide further understanding of the comparative advantage of accounting as a source of information.