by Harvey Kapnick, Chairman, Arthur Andersen & Co. (1971)

     Another example of the regulatory approach to accounting is the recent Opinion No.  20 on accounting changes.  Certain prominent accountants , including some members of the APB , have stated that the theoretically proper way to reflect accounting changes is to restate prior-period financial statements , so that all financial statements presented are on a comparable basis reflecting the new method of accounting , a method presumed under the opinion to be preferable and to provide more useful information.  But then they say that there should not be restatement except in certain prescribed cases , because it would lead to abuses.  What abuses ?  Where are the auditors ? So the APB prescribed a confusing conglomeration of approaches that can only guarantee that current and prior period statements contain erroneous and misleading information.  As many as fifty individual earnings-per-share figures can be required in a five-year earnings summary.  What are the investor and the other users of financial statements supposed to do and think about all of this? 

      So we have a mockery of the income statement .  Huge credits or debits to reflect the so-called "catch-up" adjustments to bring prior years accounting into line with the newly adopted method are reflected as part of net income for the period of change.  These adjustments have absolutely nothing to do with the current year's result of operations .  Yet accountants presumably are expected to report on the statements as a fair presentation of results of operations.  How can such a ridiculous requirement be imposed upon anyone? 

      All of this confusion could be eliminated if we would acknowledge that adoption of an improved accounting method calls for restatement of the financial statements on the newly adopted basis .  It is as simple and logical as that .  How far are we going to be led astray from plain common sense? 

From: Changes needed to meet the challenges of the future 
Address before the Conference on Formulating Financial Reporting Standards , Northwestern University Center for advanced Study in Accounting and Information Systems , Evanston , Illinois ,October 18, 1971.