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The End of Accounting and the Path Forward for Investors and Managers

Book Description

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.

Table of Contents

  1. Title Page
  2. Copyright
  3. Dedication
  4. Acknowledgments
  5. The Book in a Nutshell
    1. The Fading Usefulness of Investors' Information
    2. Who Cares?
    3. Not Only for Investors
    4. Financial Information, a Major Driver of Economic Growth
    5. Unique among Regulations
    6. About Us and Our Approach
    7. Notes
  6. Prologue
    1. Chapter 1: Corporate Reporting Then and Now: A Century of “Progress”
      1. Spot the Differences
      2. Differences Spotted
      3. Real Improvements Spotted?
      4. A Devil's Advocate
      5. Takeaway
      6. Notes
    2. Chapter 2: And You Thought Earnings Are the Bottom Line
      1. The Lucrative Earnings Prediction
      2. Curb Your Enthusiasm
      3. Earnings Had Its Days of Glory
      4. But Wait, What about the Earnings Consensus?
      5. Takeaway
      6. Notes
  7. Part One: Matter of Fact
    1. Chapter 3: The Widening Chasm between Financial Information and Stock Prices
      1. How to Measure the Usefulness of Financial Information
      2. Honey, I Shrunk Accounting
      3. Some Useful Details
      4. And Now for Some Intuition
      5. Who's the Culprit—Earnings or Book Values?
      6. Are We Fair to Accounting?
      7. How Can This Be?
      8. Takeaway
      9. Notes
    2. Chapter 4: Worse Than at First Sight
      1. When Is a Message Informative?
      2. A Preempted Announcement
      3. Measuring Financial Report Timeliness
      4. Roll the Tape
      5. Aren't We Trivializing Accounting's Contribution?
      6. Takeaway
      7. Notes
    3. Chapter 5: Investors' Fault or Accounting's?
      1. Irrational Investors?
      2. Eyes to the Future
      3. Predicting Corporate Earnings
      4. And the Results Are…
      5. Reasons, Please
      6. Investors Alert: An Accounting Loss Isn't What It Used to Be
      7. Takeaway
      8. Notes
    4. Chapter 6: Finally, For the Still Unconvinced
      1. “But Accounting Is Complicated”
      2. Experts at Work
      3. Vague Information and Disagreement
      4. Quantifying Disagreement
      5. Takeaway
      6. Notes
    5. Chapter 7: The Meaning of It All
      1. To Recap
      2. Should Investors Really Care?
      3. A Last-Ditch Defense of Accounting
      4. The Decreasing Volatility of Businesses
      5. Takeaway
      6. Notes
  8. Part Two: Why Is the Relevance Lost?
  9. Note
    1. Chapter 8: The Rise of Intangibles and Fall of Accounting
      1. The Intangibles Surge
      2. Accounting for Intangibles, Inconsistent and Opaque
      3. Worst Yet—Misleading Information
      4. More Bad News
      5. More, Not Less Information Is Needed
      6. Intangibles and the Accounting Relevance Lost
      7. Not in Their Best Interest
      8. Takeaway
      9. Notes
    2. Chapter 9: Accounting: Facts or Fiction?
      1. “GE Brings Good Things to Life,” But Not to Accounting
      2. How Did Estimates Come to Dominate Accounting?
      3. Away with Historical Values
      4. Roll the Tape
      5. Clinching the Deal
      6. Takeaway
      7. Notes
    3. Chapter 10: Sins of Omission and Commission
      1. The Missing Accounting Link
      2. Accounting and Nonaccounting Events
      3. Did We Forget Causation?
      4. On Conservative Accountants
      5. Takeaway
      6. Notes
  10. Part Three: So, What's to Be Done?
  11. Notes
    1. Chapter 11: What Really Matters to Investors (and Managers)
      1. The Corporate Mission
      2. Digging a Bit Deeper
      3. Strategic Resources
      4. Mapping Investments to Resources
      5. Preserving and Renewing the Strategic Resources
      6. Strategic Asset Deployment and Operation
      7. Measuring the Value Created
      8. The Proposed Strategic Resources & Consequences Report
      9. Takeaway
      10. Notes
    2. Chapter 12: Strategic Resources & Consequences Report: Case No. I—Media and Entertainment
      1. Sector Synopsis
      2. Sirius XM: Resources & Consequences Report
      3. Subscribers Growth
      4. It's the Strategy, Stupid
      5. Disruption Threat
      6. Value Created
      7. A Reality Check
      8. But Is This Really What Investors Need?
      9. Finally, a Report for the Sector
      10. Notes
    3. Chapter 13: Strategic Resources & Consequences Report: Case No. 2—Property and Casualty Insurance
      1. Sector Synopsis
      2. It All Starts with Strategic Assets
      3. The Resources & Consequences Report: Customers
      4. New Products—Innovation
      5. Agents—Still Important
      6. Operations—Resource Deployment
      7. Penetrating the Costs Black Box
      8. Resource Preservation
      9. Value Created
      10. Notes
    4. Chapter 14: Strategic Resources & Consequences Report: Case No. 3—Pharmaceutics and Biotech
      1. Strategy and Strategic Resources
      2. Investing in Innovation
      3. The Resources & Consequences Report: Resource Investments
      4. Innovation
      5. Strategic Resources
      6. Resource Preservation
      7. Resource Deployment-Operations
      8. Value Created
      9. Notes
    5. Chapter 15: Strategic Resources & Consequences Report: Case No. 4—Oil and Gas Companies
      1. Accounting Limitations
      2. Resource Investments
      3. Strategic Resources
      4. Resources Threats
      5. Resource Deployment—Operations
      6. Value Created
      7. Notes
  12. Part Four: Practical Matters
    1. Chapter 16: Implementation
      1. How to Elicit the Proposed Information
      2. Pfizer Responds to Analysts' Pipeline Questions
      3. Why the Pipeline Expos?
      4. An Important Role for the SEC
      5. Industry Associations Could Help, Too
      6. But, of Course, Managers' Cooperation Is Indispensable
      7. Competition and Litigation Concerns
      8. For Consideration: Lighten the Regulatory Burden
      9. Takeaway
      10. Notes
    2. Chapter 17: So, What to Do with Accounting? A Reform Agenda
      1. Revitalizing Accounting
      2. I. Treat Intangibles as Assets
      3. II. Reverse the Proliferation of Accounting Estimates
      4. III. Mitigate Accounting Complexity
      5. Takeaway
      6. Notes
    3. Chapter 18: Investors' Operating Instructions
      1. Analysis Focused on Strategic Assets
      2. Assessing Enterprise Performance and Competitive Edge: The New Approach
      3. First Step: Taking an Inventory of Strategic Resources
      4. Second Step: Creating and Maintaining Strategic Assets
      5. Third Step: Successful Deployment of Strategic Assets
      6. Takeaway
      7. Notes
  13. Epilogue: Advocacy Needed
  14. Author Index
  15. Subject Index
  16. End User License Agreement