The Case for Reinventing Financial Reporting in the 21st Century

Journal of Applied Corporate Finance, Volume 34 Number 4, 2022

9 Pages Posted: 22 Feb 2023

See all articles by Anup Srivastava

Anup Srivastava

University of Calgary - Haskayne School of Business

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Date Written: 2022

Abstract

The authors argue that financial reporting should be reinvented because of the changing nature of corporate capital, particularly the shift towards intangible assets held by 21st century winning companies such as Alphabet, Amazon, Apple, Meta, and Microsoft. GAAP-based reporting continues to work reasonably well for companies with physical assets such as factories, refineries, and warehouses. But GAAP has a lot of troubles, is totally deficient in capturing the value of mostly intangible resources used to produce products like vaccines, search services, and social media. For most knowledge-based companies, the reported book values of assets (the summary metric in balance sheet), and even the net earnings (the summary metric in income statement), have become largely useless for the decisions of investors, bankers, analysts, managers, and policy makers. This is evident from the companies that did their IPOs in the last 12 years, many of which command multibillion dollar valuations despite continuing to report losses year after year, and despite showing no operating assets on their balance sheets.

Keywords: Financial reports, Valuation, Intangibles, Knowledge economy, Accounting

JEL Classification: G11, G14, M41

Suggested Citation

Srivastava, Anup and Rajgopal, Shivaram, The Case for Reinventing Financial Reporting in the 21st Century ( 2022). Journal of Applied Corporate Finance, Volume 34 Number 4, 2022, Available at SSRN: https://ssrn.com/abstract=4357098

Anup Srivastava (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

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