Why do accounting issues end up in the ‘too difficult’ box?

Abstract

I discuss outcome-based characteristics of several vexatious and recurring standard-setting issues, described for purposes of this paper as ‘too difficult,’ and apply these characteristics to identify four examples of ‘too difficult’ accounting issues: reporting financial performance; disaggregated financial performance reporting as exemplified by segment reporting; distinguishing liabilities from equity; and accounting for intangible assets. I use existing and superseded IFRS and US GAAP standards and due process documents to illustrate the ‘too difficult’ nature of these issues. I then analyse the four ‘too difficult’ issues and discern two underlying causes. The first cause arises because existing conceptual frameworks contain either no guidance or indeterminate guidance for resolving ‘too difficult’ issues. The second cause arises when a conceptually grounded solution to a reporting issue exists but one of the following conditions is present: the solution is, as a practical matter, infeasible to implement; the solution requires so many subjective judgments and estimates that the resulting information is unlikely to be comparable and timely; the solution raises concerns about what some view as undesirable outcomes in performance reporting, in particular, volatility. I briefly discuss the extent to which extant accounting research might assist in resolving ‘too difficult’ issues and offer suggestions for future research.