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

Prologue

This book is loaded with surprises, not the least of which is that, in recent decades, corporate financial reports—the backbone of investors' information—lost most of their usefulness to investors, despite efforts by worldwide regulators to improve this information. But before delving into the evidence of accounting's relevance lost and what investors should do about it, we wish to share with you, as a preamble, two important findings that surprised even us. These will help to ease your way into the rest of the book:

• First, while accounting and financial reporting appear to be constantly changing to keep up with the times, you will be surprised to learn that the fundamental structure of corporate reporting to shareholders—balance sheets, income and cash flow statements, as well as their specific line items—is, in fact, frozen in time, having stagnated over the past 110 years. Would you believe that?
• Second, in recent years, basing investment decisions on the prediction of corporate earning—a time-honored and lucrative practice by analysts and investors—lost its edge over simpler investment techniques. It is time to look for new approaches to investment analysis.

The reason we open the book with these intriguing, yet fascinating findings is that they chart the path for the rest of the book: an unconventional and uncompromising look at the current state of investors' information, and an innovative approach at providing the information investors really need.