Are Accountants in Danger of Becoming Irrelevant?

Source: Accounting Today

In this article, Ron Baker reviews the book The End of Accounting, by Professor Baruch Lev and Feng Gu. The book is divided into four parts:

• Relevance lost. “Our analysis indicates that today's financial reports provide a trifling 5-6 percent of the information relevant to, and used by, investors.”
• Why is relevance lost? Three main reasons: 1) Intellectual capital is expensed under current accounting standards, 2) today, accounting is less about facts and more about managerial judgment, and 3) corporate value is increasingly driven by unrecorded business events.
• So, what's to be done? Attempts to supplement traditional financial reports with things like key performance indicators, value reporting, intellectual capital reports, the Enhanced Business Reporting Model, integrated reporting, and so on haven't had much of an impact. The authors recommend adding a “strategic resources and consequences report” to the financial statements.
• Implementation. The authors, who are not in favor of more regulation, suggest voluntary adoption of their proposals. They also advocate semi-annual rather than quarterly reporting, treatment of intangibles as assets (at cost), reducing the number of accounting estimates, and making accounting less complex.

Baker believes loss of relevance is the top issue facing the accounting profession today, observing that “using financial statements to run — or invest in — a modern-day intellectual capital organization is the equivalent of timing your cookies with your smoke alarm.”

He urges the industry to “bring some innovative disruption to auditing, such as having the stock markets select and pay the auditors of listed companies, once and for all tackling the sham that is ‘auditor independence.'”

The End of Accounting, Baker concludes, “is the most important book that has been written on the irrelevance of accounting in recent times. The profession had better pay attention to its diagnosis and its prescriptions, or it deserves all of the irrelevance and loss of value it will surely suffer.”

For the complete article, read “The End of Accounting?”

From Accounting Today, September 2, 2016, www.accountingtoday.com.