Some observers, however, see a danger in the growth of non-financial reporting. Other veteran Wall Street watchers agree with the theory behind non-financial reporting, though they note that it has shortcomings. He points to emerging markets such as Indonesia, where there is little or no transparency, and very high volatility. Still, Johnson worries about information overkill. But the problem with the information in the current model of financial reporting is that it is driven by accounting standards.
Accounting is based only on transactions, where sales and purchases are recorded by the system.
Increasingly, though, corporate value is created or destroyed well before a transaction occurs, Lev argues. Lev cites the case of a pharmaceutical concern that wins Food and Drug Administration approval for a new drug. The regulatory go-ahead is a huge event that can create value in the marketplace even though no transaction has occurred. Yet, if the company later successfully marketed its drug, that wouldn't be reflected in the company's accounting for perhaps three years or more down the road, the professor notes. Some say heightened stock market volatility is a result of recent regulatory changes, namely the SEC's Regulation FD, for fair disclosure.