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

Date01 January 2018
Published date01 January 2018
© 2018 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22299
The End of Accounting and the Path
Forward for Investors and Managers
Dov Fischer
Lev, Baruch, and Feng Gu,
2016, The End of Accounting
and the Path Forward for Investors
and Managers (Hoboken, NJ:
Baruch Lev is an NYU
accounting professor and a
foremost accounting expert
on intangible assets. For many
years, accounting researchers
have documented the declining
relevance of accounting infor-
mation such as net income and
return on equity in explaining
stock prices. According to Lev
and Gu, this decline in rele-
vance is due to poor accounting
standards for intellectual prop-
erty, specifically the expensing
of research and development.
Lev and Gu propose a
Strategic Resources and Con-
sequences Report that will
contain a snapshot of infor-
mation that really matters to
investors. For Sirius XM as an
example, subscribes represent
the main strategic resource.
The Report has five elements:
(a) resource development, such
as subscriber acquisition costs;
(b) strategic resources, such as
the number of subscribers;
(c) resource preservation, a
qualitative description of risk
factors such as competition
from Pandora; (d) resource
deployment, such as Sirius
penetration in new cars sold;
and (e) value created, which
consists of cash flow from
operations, plus research and
development, minus capital
expenditures, minus cost of
equity. Lev and Gu also pro-
vide an estimate of subscriber
lifetime value.
The authors provide an
example of Sirius second
quarter of 2013. For resource
development, subscriber
acquisition costs were $139
million. For strategic resources,
the company added 2.7 million
subscribers, lost 1.9 million,
and ended with 20.3 million,
with a monthly churn rate of
1.7%. For resource deploy-
ment, its new car penetration
was 69% up from 67% in the
previous quarter. Value
created was $230 million,
with subscriber lifetime value
of $8.38 billion, up from
$6.76 billion in the previous
While Lev and Feng pro-
vide a compelling framework
for voluntary disclosure, their
measures do not necessarily
have greater relevance than
traditional accounting infor-
mation. As a case in point, the
two “value-created” measures
of Sirius contradict each other.
On the one hand, value cre-
ated during the quarter was
$230 million, but on the other
hand, subscriber lifetime value
increased by over $1.5 billion
during the quarter. The two
measures seem incompatible.
There is one feature about
this book that potentially rep-
resents a missed opportunity.
As compelling as the Strategic
Resources and Consequences
Report may be, its five elements
are unlikely to gain traction
for the simple reason that they
compete with the six capitals of
the integrated reporting frame-
work. Integrated reporting
has gained considerable trac-
tion since its release in 2013.
There is a hunger for practical

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