If you never liked your accounting classes, you’re in luck. According to a new book, summarized in an article in the Wall Street Journal, it’s The End of Accounting as we know it.
But the end is not actually near – it should just look different. The authors argue that current accounting practices are backward-looking, and don’t reflect the forward-looking view that investors should take. For example, research and development spending is typically considered to be a period-expense when it actually represents a strategic investment for the future of the company.
Most companies currently do not proactively or adequately disclose enough forward-looking data for investors to reasonably estimate future growth and performance. The authors propose augmenting financial statements with supplemental information (a “Value Creation Report”) that will help all investors, not just those with deep pockets or access to company managers, to better predict corporate performance.
Speaking of the evolution of financial statements, in a prior PriSim Post we had discussed the Financial Accounting Standard Board’s proposed updates to financial statements to better align with international standards.
After you’re done cheering for The End of Accounting – are there areas of your company, or your competitors’, where looking beyond the standard financials could yield valuable insights into the future? Such as customer retention data, research and investment, product development, etc?
View this article on the PriSim Business War Games Inc. website.
PriSim Business War Games Inc. runs and designs customized business simulations that teach decision-makers about business, strategy, finance, and leadership.