This document discusses three conundrums of financial accounting as it relates to innovation. First, the most valuable assets of innovative companies are not recognized in accounting. Second, financial reports only show final outcomes and not how value is created. Third, accounting cannot measure progress using common innovation methodologies since the metrics are effectively zero. The document argues that an innovation accounting system is needed to evaluate breakthrough innovation efforts and complement traditional financial accounting.

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3 conundrums of
financial-accounting

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Dan Toma
co-author of the award winning
book The Corporate Startup |
12 years digital product
ownership experience | MBA |
certified lean startup coach

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A recent study shows that:
more than 70% of the senior
executives say that innovation
will be at least one of the top
three drivers of growth for their
companies in the next three to
five years.

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However, when it comes to measuring
innovation, in the absence of an
alternative innovation is measured using
the same KPIs that are used for the
mature core business

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1. The most valuable assets
are not the accounting
recognized assets
Accounting recognized assets are
becoming commodities!
What is used to transform
accounting recognized assets into
value is not actually recognized as
an asset.
Rooms owned Valuation
Airbnb 0 $31 billion
Hilton Worldwide ~ 895,000 $23.3 billion

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2. Accounting-based financial reports show
only the final outcome of asset deployment:
revenue & earnings.
Emphasizing financial metrics at the
expense of others shows a lack of
understanding of how value is created
(and disconnect for the customers)

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3. The accounting system can’t
measure something that hasn’t
happened
Most used methodologies in innovation -
lean startup, design thinking, agile
development - are cost prevention
methodologies

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A system, complementing
financial-accounting, that will help
evaluate progress when all the
metrics typically used for mature
businesses are effectively zero, is
needed.

9. @danto_ma
innovation accounting
in·no·va·tion | ˌi-nə-ˈvā-shən ac·count·ing | ə-ˈkau̇ n-tiŋ
organized system of principles, tools and KPIs established to
gather, record, classify, analyze and present accurate and
timely data about a company’s breakthrough innovation
efforts - working to complement the existing financial
accounting system.

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Find out more:
innovationaccountingbook.com

11. Contact Email: me@danto.ma
Website: danto.ma
thecorporatestartupbook.com
innovationaccountingbook.com
Twitter: @danto_ma
LinkedIN: linkedin.com/in/dantoma/