We live in a time when a company’s worth no longer lives in its trucks or tools, its contracts or cash. It lives elsewhere now, in the invisible, the abstract, the soft-edged: in ideas, in culture, in the loyalty of a user base, in the brilliance of an algorithm written at 2 a.m. by a sleep-deprived engineer. And yet, glance at the financial statements of some of the most admired companies in the world, and what do you see?

Not much! The things we know matter, brand affinity, proprietary code, network effects, design intelligence, are, more often than not, nowhere to be found. There is, quietly and with remarkable consistency, a profound gap between what is measured and what truly matters. On paper, the second looks far more valuable. In the market? Not even close, and so we ask, again and again: what exactly are we measuring?

This is the riddle Baruch Lev and Feng Gu posed in their book The End of Accounting. Their argument was not hysterical or radical, but eerily calm: the link between traditional accounting metrics and company valuation has broken, irreparably. Their evidence is, frankly, difficult to ignore. Where once earnings explained nearly 90% of market value, today that figure hovers below 50%, often far lower in technology-driven industries. The reason? It seems to me that Accounting has simply failed to keep pace with the structure of modern value creation.

IAS 38: A Reluctant Gatekeeper

At the heart of the issue lies IAS 38, the International Accounting Standard that governs intangible assets. To its credit, it tries. It defines intangibles carefully, sets recognition criteria (identifiability, control, future economic benefits), and distinguishes between research and development. But here’s where the trouble begins: internally generated intangible assets, the ones companies painstakingly build over the years, are often not allowed on the balance sheet at all. If you’ve developed a brand, a customer base, or a proprietary algorithm in-house, IAS 38 will likely force you to expense the cost and leave the resulting asset invisible.

Unless, of course, you acquire it through M&A. Then, magically, it becomes real, measurable, even amortisable.

It’s an accounting system that seems to believe value only begins when money changes hands. As if creativity, trust, and accumulated know-how don’t count until someone else is willing to buy them.

What We Pretend Not to See

By now, we might be tempted to shrug, to call this simply “prudence” or “standardisation.” But to do so would be to ignore the deeper architecture of the profession’s resistance. Accounting doesn’t just overlook intangibles out of habit. It does so out of fear. A quiet, deeply rational fear. And it’s worth understanding. Here, then, are the six unspoken forces that shape this global reluctance:

1. The Fetish for Reliability over Relevance

Accounting clings to the idea that what cannot be verified cannot be trusted. It treats numbers like passport officers treat documents; they don’t care if you’re interesting, only if your paperwork’s in order. In the process, it often confuses what can be proven with what’s actually true, relevance gets sacrificed at the altar of reliability.

Whoever said an accountant is someone who knows the price of everything but the value of nothing… was being generous. At least the price shows up on the balance sheet. Value, inconveniently, often doesn’t.

The most meaningful assets, brand reputation, customer loyalty, and proprietary insights, are excluded not because they lack value, but because they lack certainty.

2. The Fear of Manipulation

If companies can assign value to what they create internally, what’s to stop them from inflating those values beyond reason? The profession remembers Enron, it remembers WorldCom, and it would rather blind itself than open the door to creative fantasy dressed up as fair value.

3. The Tyranny of Historical Cost

Accounting still moves to the rhythm of the purchase price. It prefers what has been paid over what is expected, what is seen over what is felt. But intangibles, by their nature, are forward-looking. They hint at futures. And this makes them suspicious.

4. The Problem of Auditability

Auditors need evidence, market comparisons, models and methods. Internally generated intangibles offer none of this. There is no second-hand market for an algorithm quietly built over ten years, or for a culture shaped by a visionary founder. So the profession falls silent, not because it doesn’t believe in these things, but because it doesn’t know how to prove them.

5. Institutional Inertia

Standards evolve slowly, painfully, and therefore, they require consensus, field testing, and consultation papers. This is not accidental, it’s designed to ensure trust. But that very caution becomes paralysis. The world has changed, but the profession, understandably, still measures risk in lawsuits, not in missed truth.

6. The Existential Doubt

To accept intangibles is to accept that value can exist outside of transactions. That an idea, a design, a relationship might hold economic weight, even if no one has bought or sold it yet. But this asks accounting to become more like storytelling, more like philosophy. And for a discipline raised on precision, that is a deeply uncomfortable shift.

The Cost of Caution

And so we are left with this strange dissonance. Companies are worth what they cannot show. Investors make decisions based on what isn’t in the financials. The statements, once sacred texts, have become, in some cases, little more than ritual documents. Still important. Still necessary. But strangely, beside the point. Lev and Gu aren’t asking for revolution, exactly. They’re asking for something a bit quieter, but arguably harder, a kind of bravery. The kind that says,

We know this number isn’t perfect, but it matters anyway.

They want us to stop treating financial reporting like some kind of sacred geometry, where only the measurable gets to exist. Because truth, real, economic truth, is often fuzzy at the edges. But that kind of shift? It’s awkward and uncomfortable. It asks people trained in precision to start making room for judgment. And so, naturally, it’s taking time. Quite a lot of time, actually.

Because let’s face it, it’s much safer to be precisely wrong than vaguely right.

n Part Two, we’ll look at the reforms the IASB is now proposing. We’ll ask whether they go far enough. We’ll explore why US GAAP, for all its procedural might, offers little escape from the same existential constraints. And we’ll consider, gently but urgently, whether the entire architecture of financial reporting may need more than a renovation.

Perhaps what’s needed… is a reimagining!