Accounting emerged in Mesopotamia as a system of economic memory, initially used to track objects and obligations. Over time, it evolved from memory to record-keeping, stewardship, capital measurement, cost and control during the Industrial Revolution, standardisation under historical cost accounting, and eventually to fair value measurement. The process moves non-stochastic. At each stage of this evolution, however, a common limitation persisted: the absence of decisive, decision-oriented information. This raises two questions: what triggers each major shift in accounting paradigms? and does the evolution of accounting culminate with fair value measurement?
Example 1: Beginning of End – Lehman Brothers 2007-08
Lehman brothers was valued $45 Billion and within month or two, it didn’t survive. What cause Lehman Brother to file bankruptcy, does it to change to real-estate hedge fund from financial intermediary(From Earning fees from selling MBS to Owning MBS) or using short term fund to buy long term asset or to look balance sheet under leveraged, using accounting trick to show selling Repo 105 as revenue or vulturous move to become over leverage as peak to 30.7X or lack of trust where company need major liquidity and funding or in easy language we can say, not able to collect from debtor and not able to pay the debt.
The collapse was not caused by major inaccurate accounting, but by the inability of reported numbers to convey liquidity risk, leverage sensitivity, and governance fragility in a decisive manner.
Example 2: Governance Fraud – Satyam Computer 2008-09
Satyam was the first Indian listed company to list on NYSE, DOW and EURONEXT. What does go wrong with Satyam, does statement of CFO –“ I was asked specifically to not look into bank statement” & “RAJU and his brother used to take decisions and tell us to do as instructed” or Failure of Audit Committee or Non-Disclosure of the pledging of promoters share or lack of vigilance by External Audit or overlook by Six Non-Executive Directors to check promoter’s misdeed or siphoned money to buy Lands and properties.
This was a failure of information integrity an interpretability, not of accounting standards.
Early Signed by Fair Value accounting
The early adoption of fair value accounting enhanced confidence in reported assertions by allowing losses and market movements to surface earlier than under historical cost accounting. This shift improved transparency around price risk and balance-sheet valuation. However, it remained insufficient in capturing deeper governance risks and early liquidity vulnerabilities.
While fair value could expose declines in asset prices earlier, it often failed to convey whether a company’s underlying value—particularly that derived from growth assets, business models, or capital allocation discipline—was intact or deteriorating.
This is where my argue that the next evolution lies — not in new standards, but in interpretability.