Discussion of “Implications for GAAP from an analysis of positive research in accounting”

This paper discusses the paper “Implications for GAAP from an Analysis of Positive Research in Accounting,” by Kothari, Ramanna, and Skinner (in press). I discuss the role that information can play in efficiently allocating capital in the economy, and I argue that the GAAP is not primarily designed with the objective of addressing “control” issues, i.e., resolving contracting problems between shareholders and managers or between shareholders and bondholders. I also discuss the impact that conservatism has on the properties of accounting numbers, and on how it affects the usefulness of these numbers in managerial incentive contracts and in contracts with bondholders.