What I’ve learned since publishing The End of Accounting

By Feng Gu

In 2016, I published my first book, The End of Accounting and the Path Forward for Investors and Managers (co-authored with Baruch Lev). This book was the first to show with comprehensive evidence that accounting reports, the most ubiquitous form of corporate communication of financial information, have lost their relevance over time — a stunning revelation for die-hard believers of accounting. 

Since its release almost a decade ago, my book has garnered the attention of accounting and finance practitioners worldwide through its provocative message about why accounting has lost relevance and how to restore it. For a number of years, the book was constantly covered in news media, professional outlets and policy discussions in the U.S. and abroad. It was translated into four major foreign languages (Spanish, Chinese, Japanese and Korean) and was the subject of more than 30 full-length book reviews. 

The book also appeared on numerous reading lists recommended for accounting and finance professionals (e.g., Forbes’ 2020 CFO Essential Summer Reading List). My co-author and I were invited to speak about the book at numerous conferences organized by leading practitioners in accounting, investment management and investor relations. And, in 2018 I gave a two-week book tour in Australia sponsored by CPA Australia. The message in this book has resonated strongly with practitioners. It has sparked an ongoing debate about how to reform accounting.    

Here is what I have learned from the reactions to The End of Accounting.

First, the message of accounting relevance lost has gained wide recognition and acceptance. More evidence in recent years has emerged to confirm the book’s key findings, particularly the disappearing usefulness of accounting earnings in investment decisions. The continuing loss of earnings relevance has added to the urgency of reforming financial reporting. Different stakeholders, however, offer diverging views on how to improve accounting.       

Second, it identified the rise of intangible assets, such as new technologies and new industries, as a key driver for the decline of accounting relevance. This viewpoint has since been widely embraced by leading practitioners. The importance of intangible assets in our economy has persistently grown, as evidenced by the continuing waves of new technologies, such as AI, that bring fundamental and sweeping changes to our work and life. The dominance of intangible assets in our economy is abundantly clear and will require more attention from both the preparers and users of accounting reports.

Third, in response to the book’s message, there have been numerous calls by practitioners for adopting its proposals to improve accounting. These calls have not gone unnoticed by accounting standard-setters. Early this year, the Financial Accounting Standards Board decided to consider how to require corporations to measure and disclose intangible assets that are not on their balance sheets. To be clear, FASB has in the past — more than once — included the reform of accounting rules for intangible assets on its standard-setting agenda but later decided not to proceed. 

Fourth, while accounting procrastinates its much-needed reform, multiple market forces have emerged to displace the need for accounting reports. Research shows that in recent decades, non-bank lenders, such as fintech lenders who rely less on financial statements in their lending decisions, have become an increasingly important source of capital lending. The proliferation of new information technologies also creates access to new information sources that provide more relevant and timely data than financial statements. The shrinking demand for accounting reports and growing competition from alternative information sources are important factors to consider when charting the future of accounting.           

Seeing the strong reactions over the years since the book’s release has been a highly rewarding and intellectually enriching experience. It has encouraged my thinking and led me into more research on what is needed to improve the usefulness of accounting. As the exploration for the future of accounting goes on, I am optimistic that my book will continue to serve its intended purpose of advocating for changes in corporate reporting.