A commentary on “Accounting for value” - by Stephen Penman

The new book authored by Stephen Penman offers a stimulus for thinking of accounting for value. The Author’s position is completely interesting since it appears so critical against the mainstream in both finance and accounting, that forces to reflect on models and tools actually employed for valuation. Some points should be underlined. Penman tells he adhere to finance theory principles, but he really moves far away from them, since he offers a complete reinterpretation of them according to the fundamentalist perspective. On the other hand he strongly marks a gap between finance 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, the good accounting is not the one now proposed by accounting standards.