An accounting history of capital maintenance: legal precedents for managerial autonomy

Aiken, M and Ardern, D 2005, 'An accounting history of capital maintenance: legal precedents for managerial autonomy', Accounting, Business and Financial History, vol. 32, no. 1, pp. 23-60.


Document type: Journal Article
Collection: Journal Articles

Title An accounting history of capital maintenance: legal precedents for managerial autonomy
Author(s) Aiken, M
Ardern, D
Year 2005
Journal name Accounting, Business and Financial History
Volume number 32
Issue number 1
Start page 23
End page 60
Total pages 38
Publisher Taylor and Francis
Abstract The effectiveness of the capital maintenance concept that became enshrined in British companies legislation during the 19th century was almost immediately undermined when companies were permitted to pay dividends from 'circulating' capital surpluses, even though overall there were losses of total invested capital. It is generally accepted that the British courts were conscious not to limit management's capacity to innovate and operate their businesses in good faith, and to maximize the capacity of their entities to distribute dividends to shareholders now and in the future. Nevertheless, it is unclear why at the time some accounting methods were accepted as being satisfactory in certain situations but not in others. It is argued here that the British judges adhered to a number of complementary guiding principles when assessing the validity of particular accounting procedures. Central to these principles is the notion that individual firms have different planning horizons and associated particulars of risk assessment. These cannot be captured by the general use of surplus methods of profit determination using current market prices. Consequently, the courts resisted imposing uniform accounting and reporting requirements because traditionally they respected separation of ownership and control.
Subject Financial Accounting
Keyword(s) Capital Maintenance
ISSN 0958-5206
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Created: Mon, 13 Dec 2010, 14:37:00 EST by Catalyst Administrator
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