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

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  • Baruch Lev

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.

Suggested Citation

  • Baruch Lev, 2018. "The deteriorating usefulness of financial report information and how to reverse it," Accounting and Business Research, Taylor & Francis Journals, vol. 48(5), pages 465-493, July.
    • Handle: RePEc:taf:acctbr:v:48:y:2018:i:5:p:465-493
    DOI: 10.1080/00014788.2018.1470138
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