Challenging the Conceptual Foundation of Accounting Standards: A Focus on Analytical, Conceptual and Critical Thinking

Abstract

Both accounting practitioners and academicians have stressed the need for greater student development in the areas of analytical, conceptual and critical thinking. This study illustrates how an analysis of the current reporting requirements for stock dividends and splits may be used to develop skills in these areas. Students evaluate the “economic substance� of stock dividends. That evaluation leads to two important issues. First, what role does “management intent� play in the determination of economic substance. Second, should popular beliefs or preconceptions play a role in the determination of economic substance? A brief historical analysis suggests that the deficiencies associated with the reporting of stock dividends and splits result from the decision by accounting policymakers to affect an economic consequence. Lastly, the study provides two examples of the financial reporting “fall-out� resulting from the decision by policymakers to relegate the reporting of economic substance to a level of secondary importance.