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

Chapter 10Sins of Omission and Commission

Have you had enough already with the reasons for the deteriorating usefulness of financial information? We can’t resist one more, since this one flies under the radar of even experts. This is the disturbing fact that despite accounting’s aura of exactitude and comprehensiveness, there is an increasing number of important, value-changing business events that escape the accounting net or that are reported in a systematically biased manner. We show in this chapter that this commonplace, yet unadvertised omission is an important contributor to accounting’s relevance lost, and should be part of the solution.

The Missing Accounting Link

On September 20, 2013, the Dutch biotech company Prosensa Holding NV announced that its muscular dystrophy experimental drug Drisapersen failed to help patients more than a placebo. This is the nightmare of every drug and biotech company, and indeed, investors' reaction was swift and harsh: Prosensa's stock plunged 70 percent on the announcement of the trial's failure. It was not a total loss, though, since the stock of Sarepta Therapeutics Inc., a competing biotech firm developing an alternative muscular dystrophy drug increased 18 percent on Prosensa's failure announcement. One company's loss is another's gain. Large drug companies, with diversified portfolios of drugs under development, aren't hit as hard by clinical test failures, but they are hit nevertheless. The large British pharmaceutical company ...