Accounting provides information through a measurement system. I argue that the popular representation of accounting as a one-step mapping from economic substance to financial reports induces incorrect beliefs about how accounting measurement works. Such incorrect beliefs generate controversies about well-established accounting practices and can lead to poor accounting standards. For example, some academics question the value of conservatism by defining conservatism as a trade-off of different types of measurement errors. FASB and IASB's decision to eliminate conservatism from their joint conceptual framework seems to rely on similar reasoning. In this article, I emphasize a two-step representation of accounting measurement and demonstrate, through a number of examples, that it can improve our understanding of accounting's institutional features and clarify several controversies in accounting practice and regulation.
To provide information, accounting relies on an elaborate measurement system. The system's institutional features include: exclusive reliance on rules (created by fiat or social norms)...
