Simplicity and Complexity
Organization and rules of markets are often simple, but the interactions among market participants can be maddeningly complex. Instead of the "simple rules, complex behavior" approach of markets, financial reporting has taken the opposite route of trying to make the task of the accountant and auditor simple by writing increasingly complex rules. Accounting standard setters seek to minimize the need for judgment by responding to requests for clarification of their rules. Unfortunately, when the goal is to narrow the scope of judgment and personal responsibility of the preparer and the auditor for the truthfulness and fairness of the final report, there can be no end to demands for clarifications, and the result is increasing complexity. Law tries to secure just outcomes through a combination of statutory and case law and ultimate judgments of lay jurors. Perhaps accounting, too, could handle the problem though a combination of written standards, social norms, and professional judgment, exercising self-restraint through sparing use of the power of enforcement. Heavy-handed intervention by rule-making monopolies and active enforcement by the power of state have failed to improve financial reporting and are unlikely to do so in the future.
It has been suggested that the economy, including corporations, markets, and financial reporting, should not be seen as a machine with fixed components, properties, and functional relationships. Instead it is best seen as an ecosystem whose elements continually adjust with respect to one another and evolve over time.10 Just as the acceptance of the ecosystem idea deconstructed the human/nature dichotomy, recognition of financial reporting as an ecosystem may also help us turn away from the preparer/user, transaction-event/information dichotomies that lie at the heart of the recent approach to financial reporting.