An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

C. Richard Baker
Adelphi University

Abstract: This paper examines the concept of epistemological objectivity in financial reporting through an analysis of issues raised by the Securities Exchange Commission with respect to accounting for Internet activities and the manner in which the FASB approached these issues. The purpose of the paper is to illustrate the complexity surrounding the meaning of the terms “economic reality” and “neutral representation” as these terms are applied to the resolution of accounting issues. As the arbiters of US GAAP, the SEC and the FASB have adopted a “neutral representation” perspective of financial reporting. However, an analysis of communications between the SEC and the FASB about accounting for Internet activities reveals that while these bodies seek to resolve issues in a manner that is neutral and objective, they often employ subjective reasoning, thus raising questions about the extent of their concern with neutral representations of economic reality.

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