The Dilemma of International Financial Reporting Standards and the Optimization of Financial Reporting—From the Perspective of Marx’s Theory of Fictitious Capital

Abstract

Following the outbreak of the subprime financial crisis, international accounting standards came under heavy fire for being strongly pro-cyclical. Under those standards, financial reporting mixes financial statement data with financial analysis data, seriously weakening the public interest function of financial reporting. An analysis using Marx’s fictitious capital theory shows that fair value accounting and asset impairment accounting are both defective. In line with the principle of “accounting based on legal fact,” we use the methodology of “historical cost accounting plus fair value disclosure” to distinguish between legal fact and financial expectations in financial reporting. This is a viable means of appropriately resolving the contradiction between ensuring that enterprise financial reporting observes domestic law and ensuring that it accords with international trends.