Accounting Issues: An Essay Series Part VI - Investments In Securities

Abstract

This series is designed to restore to the introductory accounting course the theoretical structure now missing from most principles texts.  Laux 2007(a) offers the justification, and thus far the series has addressed the other major assets—cash, accounts receivable, inventory, property, and intangible assets.  "The Conceptual Framework at a Glance" section of the 2007 work uses the hierarchy of accounting characteristics (displayed on the following page) along with a mountain-hiking analogy to describe some of the daily accounting dilemmas encountered at the base of the mountain, potential measurement and classification issues associated with the adjusting process in the foothills of the journey, and the goal to be reached at the mountain top—reflecting economic reality, thereby making the information useful for decision makers.  To that end, the current article briefly reviews the fundamental accounting rules for investments in marketable securities, followed by a section outlining the conceptual framework connections and measurement issues.  Finally, the last section introduces some real-world examples of companies that have struggled with securities-related reporting.  The section also looks at some of the literature devoted to investments, both conceptual and empirical.