An Empirical Evaluation of Accounting Income Numbers RAY BALL*and PHILIP BROW N Accounting theorists have generally evaluated the usefulness of account- ing practices by the extent of their agreement with a particular analytic model.The model may consist of only a few assertions or it may be a rigorously developed argument.In each case,the method of evaluation has been to compare existing practices with the more preferable practices im- plied by the model or with some standard which the model implies all practices should possess.The shortcoming of this method is that it ignores a significant source of knowledge of the world,namely,the extent to which the predictions of the model conform to observed behavior. It is not enough to defend an analytical inquiry on the basis that its assumptions are empirically supportable,for how is one to know that a theory embraces all of the relevant supportable assumptions?And how does one explain the predictive powers of propositions which are based on un- verifiable assumptions such as the maximization of utility functions? Further,how is one to resolve differences between propositions which arise from considering different aspects of the world? The limitations of a completely analytical approach to usefulness are il- lustrated by the argument that income numbers cannot be defined sub- stantively,that they lack "meaning"and are therefore of doubtful utility.1 The argument stems in part from the patchwork development of account- *University of Chicago.University of Western Australia.The authors are indebted to the participants in the Workshop in Accounting Research at the Univer- sity of Chicago,Professor Myron Scholes,and Messrs.Owen Hewett and Ian Watts. 1 Versions of this particular argument appear in Canning (1929);Gilman(1939); Paton and Littleton (1940);Vatter (1947),Ch.2;Edwards and Bell (1961),Ch.1; Chambers (1964),pp.267-68;Chambers (1966),pp.4 and 102;Lim (1966),esp.pp.645 and 649;Chambers (1967),pp.745-55;Ijiri (1967),Ch.6,esp.pp.120-31;and Sterling (1967),p.65. 159