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

Chapter 6Finally, For the Still Unconvinced

In which we show that measures of financial analysts’ uncertainty, or ambiguity about the future prospects of the companies they follow have been trending up during the past three decades. We attribute this intriguing finding, in part, at least, to the deteriorating quality of the main information source analysts rely on—the corporate financial report. This complements our previous evidence on the diminishing usefulness of financial information, showing that it affects even the primary capital market experts—financial analysts.

“But Accounting Is Complicated”

A final objection we have heard to the battery of accounting usefulness tests we reported in the preceding chapters may be summed up in three words: Accounting is complex. Portraying the operations and financial condition of today's companies—global, fiercely competitive, fast changing, and innovative—requires a highly sophisticated, nuanced, and complex information system. For most investors and lenders, this information system may indeed be obscure, even confusing, hence the increasing chasm we documented between stock prices and financial information. By necessity of reflecting business complexity, our critics argued, much of the information in financial reports is targeted at experts. Indeed, who besides an expert can fathom the accounting jargon of fair values of assets and liabilities (what's fair about those?), impairment of goodwill value, off-balance-sheet financing, ...