Renowned New York University Finance Professor Baruch Lev's book, The End of Accounting, makes some very bold statements about the current state-and future-of financial reporting. Rotman School of Management Professor Partha Mohanram responds to some of Lev's more provocative statements, covering topics including: cash flow vs. earnings; the role of intangibles; accounting complexity; and the way forward.

An analysis of more than 25,000 earnings calls made by publicly held U.S. companies reveals that the tone of calls is markedly different depending on the time of day--and stock returns over the next quarter reflect that tone, with negative calls associated with abnormal negative returns. Managers should consider these findings when scheduling calls and be aware that, for example, a 3 PM call is likely to have a far more negative tone than an 8 AM call.

Providing earnings guidance-publicly releasing managerial forecasts of a company's profits-has become a highly controversial practice, with critics ranging from Warren Buffett to a McKinsey team to the U.S. Chamber of Commerce. Yet more than a thousand U.S. corporations issue such forecasts each year. Are they making a mistake? On the contrary, argues Lev, an accounting professor at NYU Stern: Investors want more information, and they will reward companies that make it available. Conventional wisdom notwithstanding, Lev maintains that investors care a lot about what drives a company's long-term growth; however, they often need help understanding what the drivers are. Guidance, non-GAAP pro forma earnings statements, and executive conference calls with investors and analysts after the release of earnings statements are potent tools. Done right, they can bring higher stock prices, lower volatility, and reduced cost of capital, and they may also temper shareholder litigation and its consequences. Some guidance for guiders is in order: Offer guidance only if your predictions are consistently better than analysts' consensus forecasts. Don't stand out as a "guidance refusenik" in a sector where guidance is prevalent. Maintain credibility and don't duck the truth-manipulating expectations so that reported earnings will comfortably exceed them breeds mistrust. Resist legal advice to be cryptic or bland, and don't overlook the value of "soft" information; executives' narrative and tone color many investors' decisions and account for most stock price changes in the wake of financial reports. These are not easy times to be an executive dealing with financial markets. But running away from disillusioned investors only makes things worse. Far better is to figure out what they value and to shape your financial reporting and communications strategies accordingly.

Intangible assets--patents and know-how, brands, a skilled workforce, strong customer relationships, software, unique processes and organizational designs, and the like--generate most of a company's growth and shareholder value. Yet, extensive research indicates that investors systematically misprice the shares of intangibles-intensive enterprises. Clearly, overpricing wastes capital. But underpricing raises the cost of capital, hamstringing executives in their efforts to take advantage of further growth opportunities. How do you break this vicious cycle? By generating better information about your investments in intangibles and by disclosing at least some of that data to the capital markets. Getting at that information is easier said than done, however. There are no markets generating visible prices for intellectual capital, brands, or human capital to assist investors in correctly valuing intangibles-intensive companies. And current accounting practices lump funds spent on intangibles with general expenses, so that investors and executives don't even know how much is being invested in them, let alone what a return on those investments might be. At the very least, companies should break out the amounts spent on intangibles and disclose them to the markets. More fundamentally, executives should start thinking of intangibles not as costs but as assets, so that they are recognized as investments whose returns are identified and monitored. The proposals laid down in this article are only a beginning, the author stresses. Corporations and accounting bodies should make systematic efforts to develop information that can reliably reflect the unique attributes of intangible assets. The current serious misallocations of resources should be incentive enough for businesses to join--and even lead--such developments.