Streams of accounting thought and capital-income theory

Abstract

Purpose This article’s purpose is to present a viewpoint regarding a recent attempt in the accounting literature to organize accounting thought into a typology of four streams. Design/methodology/approach This viewpoint examines whether the proposed typology makes meaningful connections to Irving Fisher's (1906) capital income theory, also described in the accounting literature. Findings Despite the evidence, there continues to exist the position of either denial or dismissal of the relevance of Irving Fisher's (1906) capital-income theory for accounting thought and practice. The typology proposed to organize accounting thought was decision usefulness, futurity, general price level and consolidated goodwill. However, these research areas are developments from the capital-income theory of accounting and economics. Accordingly, they are founded on the explanation that discounted cash flow models based on speculative forecasts of future monetary flows and discount rates could explain markets, values, prices and even “capitalism.” Research limitations/implications Various scholars seem to believe that capital-income theory is how markets function, and thus, there is no need for any theory about it. However, this position is no longer defensible. Practical implications This study reviews the literature that shows that the capital-income theory lacks empirical evidence and logical coherence. Thus, conclusions based on this theory must be drawn with great caution. Originality/value This viewpoint provides an original demonstration that attempts to systematize and organize accounting thought and the accounting literature must take Fisher's capital-income theory into consideration.