Customer Reviews

The ValueReporting Revolution: Moving Beyond the Earnings Game

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The words "compelling" and "accounting" are seldom used in tandem, but there is no other way to describe this call to arms written by former Harvard Business School professor and three accountants at PricewaterhouseCoopers. The book, which is framed as a manifesto for change in the world of corporate reporting, is written in un-accountant-like language bordering on the subversive. It's main message: Traditional corporate reporting practices are inadequate and downright dangerous in the New Economy. They are inadequate because they don't capture the non-financial measures and intangible assets that now drive value. They are dangerous because they force investors to rely too heavily on short-term financial results, thereby contributing to unprecedented volatility in global equity markets. The authors' remedy? Disclosure of more and better information. This new model is presented in such detail that executives could use it as a blueprint in building new corporate reporting regimens. But you needn't be a corporate leader to appreciate the far-reaching implications of this book, which we at getAbstract.com recommend to all professionals as a - yes - compelling analysis of the current practice and evolving future of corporate reporting and its standards, pivotal benchmarks in the global economy.

This is the first book that adresses the critical issue of corporate reporting - which hasn't significantly changed, if not since business entities started to get created in Ancient Mesopotamia, at least since the Great Depression. Yet investing habits have significantly changed. The SEC has brought in much needed changes in the way financial information gets reported, especially the way reports get written, etc. But there has been little movement in the types of information which get reported or new types of analyses that need to get done so shareholders have a better picture of the companies in which they invest.

This book takes us long ways in pushing for such changes. Written by a group of people who know a lot about the topic - unlike most business books, which are typically written by those who know very little, because the ones in the know are too busy working - this sounds the first death knell of corporate reporting as we know it. It is a rather courageous set of arguments that the authors make, coming as it does from an institution, PriceWaterhouseCoopers, which, frankly, has plenty of incentives to maintain the status quo.

I would highly recommend this book to every manager, investor, and student of business. One of the nice aspects of the book is its international breadth, further reinforcing the argument that in today's global realities, the changes ought to be globally driven and required.

The best thing about the book is its rigor. The authors' authority of over their subject matter clearly comes through the book as does their hands-on experience in wrestling with tricky, complex, corporate reporting issues that companies face and shareholders need - issues that under today's requirements are typically not addressed, and therefore, lead to the kinds of deleterious effects that are evident in today's pump-and-dump markets.

Finally, in a world of superficial, shoddy, silly, ghost-written tripe that is published under the guise of management thinking, this book stands as a shining, stellar example of what good management writing is all about: rigor, clarity, and the kind of expansive and aspirational thinking that forces people to want to read a book and ask themselves, "where do I begin?" This book is a much needed call to action on probably the most important managerial, corporate, and financial issue.

This is the most lucid coverage of an accounting topic that I have ever read, and also the clearest in marrying the underlying accounting principles to the related software topics. The first part of the book explains what Value Reporting is (no surprises here) and why it is needed (in theory). The book then gives how-to examples to clarify the concept. The middle of the book distinguishes this book from many other similar texts -- it explores the history of audited financial reporting, examines previous reforms and why they did not succeed more fully, then gives a data-rich analysis of why Value Reporting is REALLY needed. The last third of the book is even better: It discusses problems and opportunities in Value Reporting; it discusses how the underlying software technology -- both XML (extensible markup language -- a specification or a grammar for a class of languages, but not a specific language itself) and XBRL (extensible business reporting language, a specific

"dialect" or implementation of the XML grammar) make it possible to implement Value Reporting; finally, the book explores deficiencies in XBRL and how they need to be corrected if they are to support implementation of Value Reporting.

The book is a lucid and pleasant read for accounting experts, software experts, and the much larger population of professionals who are potential users and consumers of Value Reporting.

The authors are multidimensional professionals -- they are developers and users of modern systems of financial reporting, and they are experts both in developing the theory of Value Reporting and in implementing specific real-life applications.

The book explains several unusual technical and managerial principles in clear and everyday terms, without getting sloppy or misleading for expert readers. Perhaps it is because of the authors' technical qualifications and their experience in applying their expertise to everyday managerial and reporting problems, that they are able to clarify without oversimplifying an almost obvious topic based on quite advanced accounting and software techniques.

In the interest of full disclosure to readers who should know something about the reviewer, he holds earned doctorates in Information Theory (Yale) and Mathematics (University of Paris). Between two tours of duty in the US Government at the level of assistant secretary, under secretary, and finally chief executive of an independent agency, he was founding chairman of a software company that was, for quite a few years, an acknowledged leader in designing and implementing financial reporting and control systems.

He is today chairman of two start-up technology companies, one of which is applying its technology and software to questions of Value Reporting.

The Value Reporting Revolution offers a much needed attack on the status quo of financial reporting and, even more importantly, suggests some remedies. Weaving cases and data from original research, academic papers, and the business press, Eccles et al. have written an accessible guide with minimal accounting jargon and even touches of humor.

After thorough analysis of the shortcomings of today's "earnings game," the authors map out a comprehensive approach to determining and sharing key financial and nonfinancial data that will help all business stakeholders assess a company's value. By using internal performance measurement tools such as the Balanced Scorecard for external reporting, companies can focus more clearly on creating value rather than face a quarterly scramble to burnish their earnings picture. Nonfinancial disclosure would also improve decision making for investors by providing a more complete picture of company operations and strategy.

In addition to promoting a commitment to improved ongoing communications, the authors note that the Internet and recent financial disclosure regulation have enabled new entrants to develop and distribute a range of economic information and services that compete directly with traditional Big-5 and Wall Street firms. This could signify the end of the "double-secret, uber-whisper" the earnings rumors that reach (and reward) only a subset of a subset of people in the know.

As an organizational consultant, this book was very helpful in clarifying the network of relationships among companies, analysts, regulators, accountants, and investors - and showing how they misestimate value and often move markets based on limited, asymmetric information. ValueReporting suggests an alternative way for companies to account for themselves that is aligned with sound management and sound investing.

If you want to learn about accounting scams, you probably need Mulford and Comiskey, The Financial Numbers Game. But for a broader view of the virtues and limits of accounting, Eccles and company have a lot to offer. You can skip or skim the somewhat overhyped stuff about the "ValueRevolution" itself (note that three of the authors come from PricewaterhouseCoopers, where they seem to be having some trouble with their space bar, or spacebar). Keep your best brain cells for chapters three through eight, where you get a look at the earnings obsession -- and just as useful, a suggestion of what investors really need and want. Note that one of the co-authors (Robert H. Herz) is the new head of the Financial Accounting Standards Board).

"ValueReporting" smoothly describes many broken financial reporting processes, including "whispering", a time-consuming process that CFOs play with analysts, where CFOs "whisper" their earnings expectations to the analyst, making the analysts appear intelligent. A great deal for the analyst cause they don't have to do any real analysis. If the CFO does not play this game, they risk the wrath of Wall Street.

The problem with this is that it is in violation of the spirit (if not the law) of the yet to be enforced SEC Fair Disclosure Act which states that Sally Q. Public gets to know material information the same time that John Q. Analyst does.

"ValueReporting" does offer a practical solution through XBRL technology. As a member of XBRL.org I strongly agree with the authors that if business reporting, both financial and non-financial, is standardized, Web technologies are in place to distribute this information uniformly to all investors and in a richer format than at present. With the gentle prodding of regulatory agencies like the SEC and FDIC, this will happen sooner rather than later. Let's hope that SEC Chairman Unger reads this book, and fast.

For me as a consultant and a technologist "who can spell XBRL", The ValueReporting Revolution was a call to arms to apply my knowledge to the inequities of financial reporting. Helping clients sell their wares over the Web is nice, but to level the financial playing field for small companies as well as large, for the small investor as well as the institutional, is ennobling. And forcing Wall Street analysts to actually work for a living, would be, well, just icing on the cake.

It is clear to everyone who thinks about the topic that traditional financial reports are a completely inadequate measure of overall corporate performance. But, like the weather, everyone talks about the issue and no-one does anything about it. Eccles et al have -- they have put forward concrete suggestions for making progress on this difficult issue. Congratulations also for the lucid and interesting prose style. This book belongs on every executive's book shelf.

The ValueReporting Revolution is one of the best, if not THE best, financial book that I have read in the last few years. Thought provoking and compelling, this book provides a sharp analysis of how and why current corporate reporting systems need to evolve. A must read for both the investing community, who need to understand a company's true value, and the financial community, who report on and create a company's value.

This book provides excellent insight into the dark world of accounting practices and brings to light the more practical aspects of corporate valuations. Must reading for anyone interested in investments, the new bible for mergers and acquisitions.

If you are a public company officer and have ever been frustrated about your company's market valuation, this book is for you. It provides incredible insight into the "earnings game" and offers a solution for companies aspiring to be valued appropriately by the market.

Also interesting is the book's no-holds-barred analysis of the various participants in the "earnings game" - including the accounting profession itself. Surprisingly fun to read with humor and anecdotes woven into a message that you WILL incorporate into your company's formula for maximizing sharholder value.