By adopting a ‘revenue/expense’ model, the matching principle has traditionally played a fundamental role in determining earnings. However, since the 1970s, standard setters have chosen to move to an ‘asset/liability’ approach to determine income. Some authors argue that these changes in accounting standards have caused a decline in the matching process, exercising a negative impact on the quality of earnings. A contrasting view, however, is that changes in the economic activity have caused the decline in matching. Moreover, according to Barth, there is no ‘matching principle’. Indeed, the matching process often leads to the recognition of assets/liabilities of questionable substance and, therefore, cannot be considered an end in itself. The purpose of this chapter is to perform an extensive and systematic literature review on the determinants and consequences of the matching process, examining a topic of major concern for standard setters.
Part of the book: Accounting from a Cross-Cultural Perspective