The Financial Accounting Standards Board (FASB) indicated that
the traditional accounting information system design actually constrained
standard setting in FASB Statement 95, “A Statement of Cash Flows.”
The Board received 450 comment letters, most from bank lending
officers-accounting information users-who favored requiring the direct method
for the cash flow statement. Corporation accountants, on the other hand,
favored the indirect method due to excessive implementation costs. They
appealed to the Board because they could not currently obtain gross operating cash
receipts and payments directly from their accounting systems. The FASB decided
to allow both the direct and indirect methods, largely due to design
limitations of traditional accounting systems.
a. Explain the limitations of the traditional accounting
architecture that make it difficult to directly trace the cash flows of an
organization.
b. Did FASB respond properly to accounting’s information
customers? Justify your response.
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