Today's knowledge-based economy requires a new framework for corporate disclosure. The authors of this book envision an entirely
new system of assessing the value of companies-a system tapping the vast communication capabilities of the Internet. Corporate financial reporting would become forward-looking, would be based on precise, comparable measures, and would be presented in real time.
Robert E. Litan directs the economic studies program and holds Cabot Family Chair in Economics at the Brookings Institution. He is also the codirector of the AEI-Brookings Joint Center for Regulatory Studies. Peter J. Wallison is a resident fellow at the American Enterprise Institute and codirector of AEI's project on financial market deregulation.
The Generally Accepted
Accounting Principles (GAAP) in use today evolved out of an accounting system designed to measure and report the value of companies that used tangible assets-such as rolling stock, machinery, or land-to manufacture goods or
provide services. In that system, the cost of the assets used in the production of income was the foundation of the values recorded on the balance sheet. That made sense because the cost of those assets was their value-they could be duplicated in most cases for the amount at which they were carried on the company's balance sheet. Moreover, the depreciation of those assets over time allowed costs to be allocated to revenues in order to provide a more accurate measure of profitability.