Articulated Accounting: Accruals, Cash Flow and the Double-Entry Constraint on Earnings

Abstract

Motivated by comments by the FASB, IASB and CFA Institute on the need for greater articulation in financial reporting, this paper explores a model design for explicitly articulated financial statement variables. The estimation of articulated earnings components described in this paper uses a system of structural regressions, where the framework of simultaneous linear equations allows for the most basic property of accounting – double entry – to be incorporated within the model as a constraint that recognizes the zero-sum articulation of financial statement variables.