Title: Is accounting at odds with corporate governance?

Authors: Robert M. LoBue

Addresses: Reutlingen University, Alteburgstr. 150, 72762 Reutlingen, Germany

Abstract: Many incidents of accounting fraud and audit failure continuously provide evidence that the quality of management-supplied information sources is clearly insufficient, creating a transparency barrier between management and shareholders in the 21st century system of corporate governance. Towards resolving this issue, strategic management theory assists with identifying the investments in intangibles-related activities that add strategic value in today|s corporations. Knowledge management theory further supports an innovative classification approach, providing for significantly higher accounting recognition of these intangible assets. The agency assurance approach calls for a completely new accounting standard in which the differentiation costs of today|s readily identifiable, explicit knowledge-based intangibles are capitalised as assets, while investments in tacit knowledge-based activities remain as period expenses. Capitalisation not only validates the strategic value of differentiation costs but also, simultaneously, provides the cost basis for management|s monitoring of the underlying intangible assets.

Keywords: management-supplied information; transparency barriers; corporate governance; strategic management; KM; knowledge management; intangible assets; agency assurance; differentiation costs; explicit knowledge; tacit knowledge; accounting fraud; audit failure.

DOI: 10.1504/EJIM.2009.022632

European Journal of International Management, 2009 Vol.3 No.1, pp.21 - 41

Available online: 19 Jan 2009 *

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