The deteriorating usefulness of financial report information and how to reverse it

Baruch Lev*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

There is a wide-spread and growing dissatisfaction with the relevance and usefulness of financial report information, particularly among investors and corporate executives. The dissatisfaction is corroborated by extensive research which consistently documents a growing gap between capital market indicators and financial information, more so for reported earnings. The reported earnings of most firms no longer reflect enterprise performance. I trace the deterioration of the usefulness of financial information to: (1) the abandonment by accounting standard-setters of the traditional income statement (matching) model in favour of a balance sheet (asset valuation) model, and (2) standard-setters’ failure to adjust asset recognition rules to the fundamental shift in corporate value-creating resources from tangible to intangible assets. I conclude this paper with change proposals to restore the usefulness of financial information to investors.

Original languageEnglish
Pages (from-to)465-493
Number of pages29
JournalAccounting and Business Research
Volume48
Issue number5
DOIs
StatePublished - 29 Jul 2018
Externally publishedYes

Keywords

  • financial reporting
  • intangibles
  • investors
  • reforms
  • standard-setting

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