This week, we explore a new way to think about value investing, and the ways that traditional metrics fail to capture critical aspects of modern businesses. To complement that piece, which can be read here, we look at the difficulties of accounting intangible assets - the non-physical parts of a business that are often the motors of growth.
Investors can attempt to re-interpret reported numbers to make sense of how intangibles are accounted for. But that still leaves two glaring questions: how might accounting standards change to solve the problem, and why is this not happening?
Last year, Stern School of Business accounting and finance professor Baruch Lev presented the case for change in financial reporting in an article published in the European Accounting Review titled 'Ending the Accounting-for-Intangibles Status Quo'. Lev is the author of several books on the subject, including The End of Accounting. He also writes the highly readable End of Accounting blog. He reckons the problem is significant, change is long overdue and that some of the biggest problems with accounting standards could be fixed relatively simply.