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

Chapter 7The Meaning of It All

Having presented in the preceding four chapters comprehensive evidence on the deteriorating relevance of financial information to investors, and before highlighting the reasons for the deterioration and, importantly, the way forward, we need to address two pertinent questions: First, should investors really care about accounting’s relevance lost? In this day and age, aren’t there ample substitutes for accounting information? Second, is all our documented relevance lost due to failures on the part of accounting, or the result of extraneous factors, like increasing economic volatility, which will fail any information system? Our evidence-based answers to these questions will surprise you.

To Recap

We have presented in this, the first part of the book, comprehensive evidence that clearly portrays a continuous and steep deterioration in the usefulness of financial (accounting) information to investors.¹ The evidence, based on large samples comprising of most US public companies, spans the past half century, and examines information usefulness from four different perspectives:

• The role of key financial report indicators—sales, cost of sales, SG&A expenses, earnings, assets and liabilities—in investors' equity decisions.
• The timeliness (decision relevance) of financial information released to investors.
• A capital market-free test: the ability of reported earnings to predict future corporate performance.
• The quality of the financial information ...