ABSTRACT:

Beaver and Rappaport [1984] have recently advocated a database approach to corporate financial reporting, a concept which has its roots in Sorter's proposal [1969] for an events approach to accounting theory. Recent developments, especially the SEC's EDGAR program, indicate that contemporary financial reporting may be evolving toward a database disclosure approach. This paper examines the technical and economic feasibility of the database approach. It is concluded that the approach is technically feasible, but that it would have varying economic effects on significant classes of participants in our economy. The paper identifies 11 participant groups within our economic system that would be significantly affected by the implementation of a database approach to corporate financial reporting, and examines the most likely consequences for each group. Based upon this analysis, a set of predictions is derived concerning whether each group is likely to oppose or favor proposals for a database approach. The deductive method is employed, drawing primarily upon theoretical results presented in the accounting, economics and finance literatures. It is concluded that the most likely supporters of the database approach are government agencies involved in regulatory enforcement, accounting scholars, and the data processing industry, while the most likely opponents are corporate managers, corporate accountants, financial analysts, and investors with private access to inside information.