Despite the objective of informing investing and lending decisions, corporate reports increasingly fail to capture the economic resources that are fundamental to the success of modern companies. In particular, today’s financial reporting rules prohibit companies from recognising most of the internally generated intangible assets that define corporate success in the digital age. This growing deficiency can be observed in the widening chasm between companies’ reported numbers and their market capitalisation. This incongruence raises serious questions about the value relevance of today’s corporate reporting. For example, is decision-useful information provided by leading digital-age companies experiencing exponential economic growth reporting accounting losses while providing billion dollar economic returns to their shareholders? This disconnect also leads to confusing reporting at the intersection of updated market-based information and outdated cost-based information. For example, recall from the recent financial crisis, the ‘change in own credit’ reporting issue that was widely reported on as being counterintuitive, anomalous, and worse. The event also seeks to stimulate discussion in the lead up to the International Accounting Standards Board’s forthcoming agenda consultation.
The panel discussion focuses on the value relevance of today's accounting information, ie filling the gap between market capitalisation (an economic measure of net assets/equity) and accounting equity/net assets. The recognition gap, the measurement gap and the ‘unknown unknowns’ that makes up the difference. Reference will be made to ongoing value-relevance academic research including Mary Barth’s current draft research paper Evolution in Value Relevance of Accounting Information.