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Commentary on “Accounting for Value” by Stephen Penman

Commentary on “Accounting for Value” by Stephen Penman Abstract “Accounting for Value” by Stephen Penman is thought-provoking in its challenge to mainstream in both finance and accounting. This fosters a reflection on models and tools employed for valuation. Some points about the book should be underlined. Penman states that he adheres to finance theory principles, but he moves away from them, as he offers a complete reinterpretation of such principles from a fundamentalist perspective. He also puts a distance between the finance theory approach and his own. Value is about business, he says, not about paper. The finance approach is focused on paper (stocks, bonds) and neglects business. Knowledge about business and prudence should be adopted by analysts in order to challenge market prices and find profit opportunities. Accrual accounting should be used instead of the discounted cash-flow approach, he says, and therefore “accounting for value” is not only about value but about accounting too. However, Penman argues, good accounting is not the one currently proposed by accounting standards. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting, Economics and Law de Gruyter

Commentary on “Accounting for Value” by Stephen Penman

Marzo, Giuseppe
Accounting, Economics and Law , Volume 4 (2) – Jul 1, 2014
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Publisher
de Gruyter
Copyright
Copyright © 2014 by the
ISSN
2194-6051
eISSN
2152-2820
DOI
10.1515/ael-2013-0026
Publisher site
See Article on Publisher Site

Abstract

Abstract “Accounting for Value” by Stephen Penman is thought-provoking in its challenge to mainstream in both finance and accounting. This fosters a reflection on models and tools employed for valuation. Some points about the book should be underlined. Penman states that he adheres to finance theory principles, but he moves away from them, as he offers a complete reinterpretation of such principles from a fundamentalist perspective. He also puts a distance between the finance theory approach and his own. Value is about business, he says, not about paper. The finance approach is focused on paper (stocks, bonds) and neglects business. Knowledge about business and prudence should be adopted by analysts in order to challenge market prices and find profit opportunities. Accrual accounting should be used instead of the discounted cash-flow approach, he says, and therefore “accounting for value” is not only about value but about accounting too. However, Penman argues, good accounting is not the one currently proposed by accounting standards.

Journal

Accounting, Economics and Law – de Gruyter

Published: Jul 1, 2014

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