Finance

Accounting

Business

Accounting information system

Valuation (finance)

Audit

Earnings

Fair value

Book value

Balance sheet

Market value

Financial statement

Computer science

Computer security

Asset (computer security)

Financial ratio

Accounting and Business Research

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.

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