Stephen Penman explains how shareholder value accounting, an approach designed to accurately track the value of shareholders’ assets and liabilities, differs from traditional accounting methods.
What is shareholder value accounting, and how does it differ from generally accepted accounting principles (GAAP) and other methods of accounting for stock options and related claims?
Shareholder value accounting (SVA) is accounting that reports faithfully to the shareholders. It’s a form of accounting that has as its primary goal reporting to the shareholders about what their earnings are and what their assets and liabilities are. GAAP accounting keeps track of the assets and liabilities of the firm, rather than those of the shareholders. If a firm borrows by writing a claim on the shareholders’ equity, GAAP doesn’t record that. If a firm pays off a loan by issuing stock at less than market value, GAAP doesn’t record that as a loss to the shareholders. GAAP doesn’t have the shareholders’ interests at heart.
See full Article.
Posts
