Dark Accounting Matter

Physicists calculate that approximately 85% of the matter in the universe is composed of “dark matter” that “does not absorb, reflect, or emit electromagnetic radiation and is therefore difficult to detect.” The S&P 500 currently trades at a price to book value of 4.2, suggesting that book value accounts for less than 20% of the S&P 500’s market value. The remaining 80%, appears nowhere in these firms’ balance sheets—it is invisible to contemporary accounting techniques and constitutes “dark accounting matter.”

In a recent article, I explain that dark accounting matter has become a significant limitation on the relevance of financials reported under Generally Accepted Accounting Principles (GAAP). Notably, as I explain, some “dark accounting matter” is composed of factors commonly described as components of “ESG.” ….

Source: Dark Accounting Matter