Baruch Lev is Professor of Accounting and Finance at New York University, Stern School of Business, the Director of the Vincent C. Ross Institute for Accounting Research and the Project for Research on Intangibles1. He is an internationally recognized expert for accounting and reporting issues related to Intangible Assets, working closely with such institutions as the U.S. Securities and Exchange Commission and the Financial Accounting Standards Board, OECD, the European Union, and the Brookings Institution (see also at the bottom of this page: Lev's Congressional testimony in the Enron case, February 6, 2002).
This is a shortened version of an interview with Baruch Lev from the book “"Intangible Assets or the Art to Create Value"”2 by Juergen Daum (April 2002). This shortened version has been published in the German Newsletter “Controlling & Finance”, issue 02/2002.
Juergen Daum: Why is traditional accounting in our knowledge and information based economy an outdated model ?
Baruch Lev: One of the major problems with today’s accounting systems is, that they are still based on transactions, such as sales. In the current, knowledge-based economy much of the value creation or destruction precedes, sometimes by years, the occurrence of transactions. The successful development of a drug creates considerable value, but actual transactions, such as sales, may take years to materialize. Until then, the accounting system does not register any value created in contrast to the investments made into R&D, which are fully expensed. This difference, between how the accounting system is handling value created and is handling investments into value creation, is the major reason for the growing disconnect between market values and f ...