Business Models in Accounting : The Theory of the Firm and Financial Reporting

The paper summarises the development of the economic theory of the firm, with particular reference to the work of Knight, Coase and Williamson, and examines its potential relevance to questions of measurement in financial reporting. Based on differences between firms' business models, and building on the work of Penman, criteria are put forward for choosing between fair value and historical cost. Practical problems of a business-model-based approach to measurement are identified and discussed