BARRY Melancon, president and CEO of the American Institute of Certified Public Accountants, on being asked what kept him up at night replied: "My biggest worry is the relevancy of our core products."That being the case, The End of Accounting, a new book written by Prof Baruch Lev and Feng Gu is likely to give him a few sleepless nights. One of the first things the authors do is bust the myth that "earnings move markets" by showing that the time-honoured ritual of financial analysts and investment managers predicting firms’ earnings and basing investment decisions and recommendations on these predictions, can be bested by simpler investment routines. They also show that earnings estimates have lost much of their relevance.When Netflix earnings fell short of the consensus estimates earlier in 2016, its share price rose almost 18%. Investors justifiably ignored the backward-looking accounting information, acknowledging that a major reason for the earnings shortfall was Netflix’s large...
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