Episode 509: The Gap In GAAP: Accounting’s Deteriorating Paradigm
Since Luca Pacioli’s 1494 invention of double-entry bookkeeping, accounting has seen little innovation. GAAP, designed for an industrial economy, is outdated in a world where intellectual capital drive business success. Dr. Margaret Blair’s research shows that by 1998, only 30% of a company’s value could be attributed to tangible assets, leaving 70% unaccounted for in GAAP financial statements. We’ll dive into the deteriorating paradigm of accounting and examine audit failures through the lens of a system that has become obsolete. Additionally, we’ll explore reform ideas from a free-market perspective, considering how innovations like blockchain and market-driven information and incentives could push the profession beyond GAAP’s limits. Join Ed and Ron for a provocative look at the future of accounting, auditing, and financial reporting, and why the profession needs to evolve to meet the needs of today’s knowledge economy—a bold rethinking of accounting’s past, present, and future.