Two models of income measurement within the Italian accounting theory of financial statements: a research note based on a pragmatic constructivist analysis

Financial statements measure and monitor a company’s major life events. For this reason, they have always been a central object of analysis and discussion in the accounting field and, more generally, in business administration. By drawing on foundational theoretical principles, regulations and accounting standards, financial statements record the dynamics of both capital and income over the years to provide a logical synthesis of a company’s economic, financial and asset situation. They constitute a vital document for both internal controls and reporting procedures, thereby supporting corporate decision-making and communication processes directed at the external environment. This role of financial statements as a managerial and informative instrument at both intra-organisational and inter-organisational levels brings with it the need to interpret the meaning of the income and the capital resulting from financial accounts, especially in terms of their capability to truthfully and effectively convey a certain business reality, also in light of the particular historical moment of reference. Different dominant values of different historical eras may influence how financial statements are prepared and formatted. Whether historical cost approaches, fair value approaches or calibrated combinations of the two are taken depends on the circumstances. In this article, we adopt a pragmatic constructivist perspective to interpret the validity of two theoretical models proposed in Italian literature on the theory of financial statements (the so-called Economia Aziendale approach) and to suggest some avenues for future research. Our focus is the underlying logic of the two models. Our goal is not to get into specifics about the accounting technicalities underpinning the functioning and the mechanics of the two models but to reflect on their foundational logic. The research note that this paper proposes might, therefore, constitute a useful, broad enough reference framework to interpret the meaning of different configurations of income and capital, as well as their evolution over time, which result from the practical application (through regulations and accounting standards) of the basic logics of financial statements preparation that this paper analyses.