May 2024
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Traditional corporate accounting, defined here as the publication of a balance sheet and income statement, is broken in the sense that these traditional statements no longer provide useful information to investors and others. This may be surprising to some readers as it has not always been the case, but there is ample and growing empirical evidence to suggest that today it is. The purpose of this chapter is to propose that it is time for the accounting profession and businesses to adopt a much broader concept labeled here as corporate accountability. It is defined as the public and systematic communication of information to justify an organization’s actions (past, present, and future) to various stakeholders. Baruch Lev and Feng Gu have suggested the Economic Resources and Consequences Report as an important example of how this might be done. Hewlett-Packard (HP) provides a good real-world example of a company moving in the right direction, but not without its own flaws. Nevertheless, HP’s example provides several useful lessons on how companies can move beyond the status quo. The problem of the lack of sound corporate accountability is particularly important given the main theme of this volume which posits the potential emergence of a Next Stage Capitalism. The thesis of this chapter is that without a broadening concept of corporate accountability there is little hope for significant positive change to gain real traction and it will be impossible for companies to demonstrate a social purpose beyond profit maximization in a credible way to outside stakeholders.