Mark-to-Market Accounting

           "It is the worst kind of accounting, except for all of the others"

Accounting rules regarding the valuation of assets, including notes, receivables, securities, real estate and more vary from country to country. Thousands of businesses this year will writing down the value of many assets simply because the fair market value of these is plummeting. Owners of mortgages and real estate are seeing real estate prices plummet as aftereffects of sub-prime meltdowns and softening economy. Balance sheets will suffer and so, too, will the stock prices of those companies holding assets that are getting marked down to new, low market prices.

Re-stating the value of assets is prudent as it reflects the current, liquidated value of a firm. However, some of this is getting less relevant as time goes on. Specifically, more and more of a businesses value is determined by its intangible assets. In an era where firms don't have to own their manufacturing plants and can outsource their front office, back office, distribution and more, how can an accountant value intangible assets like brand, mind-share, innovation capability and more? How much is Steve Jobs worth to Apple's share price? Can you find the asset called Steve on the Apple financial statements? No.

Accounting has a lot of work to do as a profession and the glacial pace of innovation in that sector is inappropriate today - inappropriate in a world that moves at the speed of electrons not dinosaurs. I wish I could time travel just to bring Luca Pacioli to the modern world. I doubt he'd find today's accounting practices relevant for today's businesses. Sadly, today's accounting standards are all we have.

(title quote from Economist March 8, 2008)