Accounting practices generate accounting information that is reflected in corporate annual reports. However, these practices are in a process of transition. The word ‘transition’ means “change-over, conversion, development, evolution, metamorphosis, shift” (McLeod 1985). Transition includes movement and change. Corporate annual reports are the major outcomes of the accounting process and consist of two parts: the statutory required section and the contextual disclosure section. In this article, the term ‘disclosures’ relates to notes in the financial statements and elsewhere in corporate annual reports and presentations. Accounting practices include all practices that generate any information that is disclosed both in the traditional accounting section and in the contextual section of corporate annual reports.
The objective of this article is to investigate the transition of accounting practices and to establish whether a relationship exists between Generally Accepted Accounting Practices (GAAP) (which generates statutory disclosures in corporate annual reports) and contextual accounting practices (which generate contextual disclosures in corporate annual reports). Contextual disclosures could also be referred to as discretionary disclosures. The word ‘contextual’ is, however, preferred in this article. The study shows that there is, in fact, an interdependent relationship between traditional accounting practices and contextual accounting practices. Contextual accounting practices have the potential to evolve into GAAP.