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The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance) (英語) ハードカバー – 2016/6/27
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An innovative new valuation framework with truly useful economic indicators
The End of Accounting and the Path Forward for Investors and Managers shows how the ubiquitous financial reports have become useless in capital market decisions and lays out an actionable alternative. Based on a comprehensive, large-sample empirical analysis, this book reports financial documents' continuous deterioration in relevance to investors' decisions. An enlightening discussion details the reasons why accounting is losing relevance in today's market, backed by numerous examples with real-world impact. Beyond simply identifying the problem, this report offers a solution—the Value Creation Report—and demonstrates its utility in key industries. New indicators focus on strategy and execution to identify and evaluate a company's true value-creating resources for a more up-to-date approach to critical investment decision-making.
While entire industries have come to rely on financial reports for vital information, these documents are flawed and insufficient when it comes to the way investors and lenders work in the current economic climate. This book demonstrates an alternative, giving you a new framework for more informed decision making.
- Discover a new, comprehensive system of economic indicators
- Focus on strategic, value-creating resources in company valuation
- Learn how traditional financial documents are quickly losing their utility
- Find a path forward with actionable, up-to-date information
Major corporate decisions, such as restructuring and M&A, are predicated on financial indicators of profitability and asset/liabilities values. These documents move mountains, so what happens if they're based on faulty indicators that fail to show the true value of the company? The End of Accounting and the Path Forward for Investors and Managers shows you the reality and offers a new blueprint for more accurate valuation.
"..goes far beyond a mere provocation and could be considered one of the most effective reviews on the current status of accounting." (European Accounting Association, June 2017)商品の説明をすべて表示する
Lev and Gu describe in great detail the accounting and finance literature demonstrating the 50 year decline in the importance of traditional accounting data’s influence on stock prices. Although stock prices do move in the very short run in response to earnings announcements, over the intermediate term they respond far more to non-accounting data.
According to Lev and Gu the problem with current financial accounting is that it ignores intangible assets that are developed internally, for example research and development, trademarks and investments designed to improve organizational efficiency. All of those expenses are expensed. The authors would capitalize them, which is exactly what occurs when those assets are acquired in a merger or by individual purchase. Second accounting today is more about estimates rather than hard facts. These estimates would include the provision for bad debts, pension expense, stock option expense, and even revenue recognition. Finally accounting does not take into account such unrecorded events as the receipt of a patent, a new drug approval, the signing of an important contract, and the rise or fall in the number of subscribers. It is this last category that seems to matter the most to investors. For example yesterday Netflix reported better than expected earnings, but far fewer than expected new subscribers. The result the stock dropped 15% in a heartbeat.
To remedy the situation Lev and Gu would like to see corporations present a more fuller “Strategic Resources and Consequences Report.” This is really a very enhanced management discussion and analysis section that would take into account the issues raised above.. The problem here here is whether accountants are capable of producing such a report and whether or not management would be candid enough to put it in writing. One would hope so, because it goes to the heart of what serious analysts are interested in.
This is not an easy book for the lay reader, but for the professional investor and manager “The End of Accounting” is a most useful book.
The authors have empirically studied accounting reports for the past 50 years, documenting a fast and continuous deterioration in the usefulness and relevance of financial information to investors decisions.
One compelling statistic: “Today’s financial reports provide a trifling 5-6 percent of the information relevant to, and used by, investors.”
We’ve asked GAAP to perform functions it’s not competent to perform, such as marking things to market value (Warren Buffett says, “This is not marked–to-market, rather marked-to-myth.”).
The authors have a sensible and practical proposal: “The Strategic Resources and Consequences Report,” which they suggest should be a voluntary disclosure by public companies primarily based on nonaccounting information. It would focus on the entity’s business model, its execution, and highlight a number of key indicators and other forward-looking information. The book provides many real-world examples of what this would look like.
I particularly liked the author’s attitude that their proposals would not require new regulations. The accounting profession has been regulated into irrelevance. What is needed is more innovation, the antithesis of regulation.
I also agreed with their three proposed reforms to GAAP: Treating intangibles as assets (at cost); reversing the proliferation of estimates; and mitigating accounting complexity.
Their needs to be more judgment and principles, and less rules. As The Economist pointed out: “The real Enron scandal is that so much of what Enron did conformed with GAAP.”
The accounting model is suffering from what philosophers call a deteriorating paradigm—the theory gets more and more complex to account for its lack of explanatory power.
This is why The End of Accounting is the most important book that has been written on the irrelevance of the accounting reporting model in recent times. The profession better pay attention to its diagnosis and its prescriptions, or it deserves all of the irrelevance and loss of value it will surely suffer.
translates the theory of accounting, finance, management and economics in a "survival kit" for: CEO and CFO on how to communicate with capital markets; and investors on what are the forward looking information that drive value.
He starts reminding us that good accounting should provide information on firm activities to managers (inside the company) and other stakeholders (outside the company) to aid them in making rational economic decisions. As a corollary financial reports become obsolete every time a firm’s business model changes.
New business models have emerged with significant implications on how firms create and preserve value. Despite the over mentioned changes, accounting-based financial information is produced and disseminated using reports which have not much evolved over the years in either form or content. On the base of these premises Prof. Lev reforming agenda aims, on one hand, at complementing and partially supplementing traditional accounting reports with a better accounting for Strategic Resources; on the other hand, at reversing the proliferation of accounting estimates and mitigate accounting complexity.
Accounting is not dead, it will relevant again as long as it will provide information again and not a huge compliance exercise.
This book is a must reading for managers, investor and regulators because it tells today what we will be reading in accounting textbooks in twenty years!