Non-Financial Data. The basic inputs to, and outputs from, traditional financial
accounting systems are usually expressed in monetary units. This can be a problem if the AIS
ignores non-monetary information that is also important to users. For example, an investor
might like to know what the prospects are for the future sales of a company, but many
financial AISs do not record such informationas unfulfilled customer sales because such
sales are not recognizable financial events—even though they are important ones. This is
the basic premise behind REA accounting—the idea of also storing important non-financial
information about resources, events, and agents in databases precisely because they are
relevant to the decision-making processes of their users. We discuss the REA framework in
greater detail in Chapter 4....
Case-in-Point 1.7 A friend of one of the authors of this book recently received a call from
the local hospital’s accounting office, urgently requesting to speak to his wife. The clerk was
very insistent because the wife had thousands of dollars in unpaid bills and the hospital was
anxious to settle the account. It took the friend several minutes to get a word in. Finally, he was able to reveal the one piece of information lacking in the hospital’s financial computer
records:his wife had died at the hospital...
Several professional associations now formally recognize that non-financial performance measures enhance the value of purely-financial information. For example, in 1994
a special committee of the American Institute of Certified Public Accountants (AICPA)
recommended several ways that businesses could improve the information they were
providing to external parties, including management-analysis data, forward-looking information such as opportunities and risks, information about management and shareholders,
and background information about the reporting entity. Similarly, in 2002, the American
Accounting Association (AAA) Financial Accounting Standards Committee recommended
that the Securities and Exchange Commission (SEC) and the Financial Accounting
Standards Board (FASB)encourage companies to voluntarily disclose more non-financial
performance measures