Book Review: Stephen Penman, Accounting For Value, Columbia University Press, New York 2011, 244 p.

This thoughtful book advocates for the use of accounting information in valuation and makes a persuasive case for an “accounting for value” approach. Primarily written to an investor audience, the book is equally useful to academics, standard setters, and market regulators. The audience is assumed to possess competence in basic MBA finance concepts more than basic MBA accounting. A valuation model is developed throughout the chapters, using accepted finance assumptions as the starting point. Penman highlights the “unknowns” or points of speculation and assumption in finance models, and uses what can be “known” from the accounting information as a substitute for the “unknowns” in these models. His approach does not dismiss the efficient market hypothesis or modern portfolio theory but he does point out tendencies to accept predictions (such as from CAPM) as more precise than possible.