> When a nationstate says "It's illegal to do X" but has mandatory accounting practices that do not measure X but only measure profit

We don't need accountants to measure legality. That's what we have law enforcement and courts for. Investors care about profits; behaving illegally should hurt profits. Deputising a multi-billion dollar company's thousands of shareholders as its moral police is an absurd proposal.

Law enforcement and courts aren't funded in a way that makes that effective.

> Law enforcement and courts aren't funded in a way that makes that effective

In the 1930s, the Congress realized that financial crimes were (a) prevalent, (b) serious and (c) difficult to investigate and prosecute. So it created the SEC [1]. Its specialists, with the budget, focus and mandate to pursue securities-related violations, have been effective (relative to pre-1930s finance).

Regulators make rules. They also enforce them. We have no top cop for technology. The costs of that gap are becoming apparent.

Average US citizens have no comprehension of 1930s America, FDR, etc. but the same people will instinctually glorify the 1950s as a time when traditional values led to economic prosperity.

> the GAAP has all but ensured that this happens. You want companies to have values? Then measure values! (alongside profit, not inspite of)

How do you record company/moral values into Books of Accounts? How does one audit those morals? What category do you assign it under: Asset, Liability or Owners Equity? And moreover, what would happen if morals change and some are deemed obsolete? Also, if you start to measure company values then it becomes obvious that other things that have been kept out of purview of the Books would want to have an equal footing too; like: legal contracts with clients, employee agreements, court cases, so on and so forth.

There is a very good reason why accounting standards (like GAAP or IFRS) decided to only record transactions into the Books and not be concerned with legalities or moralities. It's impossible to assign an amount to a company/moral value as what is valuable to me as a shareholder may not be considered valuable to say the local tax authority or an would be investor and vice versa.

Yes we all know that. To even start thinking about how to quantify values — and if you follow macro like i do, you know a modern economist can probably quantify anything — first we must inject values into the conversation. Right now, the world doesn't have any values. Except profit, competition, winning, domination and control. It's not even efficient — it's a prisoner's dilemma stuck at backstab/backstab. How do you solve a prisoners dilemma? ... shared values! (“thou shalt not kill”)

Yes you are right that from an economic standpoint you will be able to quantify anything. However, GAAP/IFRS was specifically created to handle only a subset of that whole gamut viz. recordation into Books of Accounts and generation of Balance Sheet, Income Statements and Cash Flow statements. There are commissions in place to handle fraud and deceptive practices for things that cannot be codified into the Books of Accounts. For instance, the Anti-Monopoly Acts enacted in various countries have safeguards that prevent a single entity from monopolising the market. However, if you try to codify this into the Books you are going to have a tough time when the law changes. You can't go back in time and retrospectively change your ledger transactions (which is static) to reflect changes in law (which is dynamic) or values/morals (which is also dynamic).

Please note that I am only replying in the context of GAAP (which you mentioned). If not, I agree with all the ideas you presented and only disagree on the one aspect of it being added to the GAAP/IFRS standards as the purpose of it's creation was to precisely steer away from unknowns and only record the knowns.

The parent comment said "Then measure values!", but didn't specify how. That was left as an exercise for the reader to imagine.

Mashing value metrics in to accounting practices seems problematic at best.

On the whole I think it's a tricky subject because we want to be careful not to stifle innovation, and sometimes problems only become evident after quite a few pavers have been laid on the road of good intentions.

Aren't intangibles exactly that, though perhaps a little broader than specifying particular moral behaviours?

Goodwill, Brand (which contains value statements), IP, etc, they're given financial value. Perhaps these don't influence shareholder/public actions as much as they could, but the measures are there at least.

> Aren't intangibles exactly that, though perhaps a little broader than specifying particular moral behaviours?

Intangibles can be bought and sold as they aren't attached to anything emotional. Moral behaviours/values, if embedded into the books, have to be through a transaction. How do you transact moral behaviour/values? That is the question I have.

> Goodwill, Brand (which contains value statements), IP, etc, they're given financial value. Perhaps these don't influence shareholder/public actions as much as they could, but the measures are there at least.

Accounting principles state that for anything to be recorded in the Books a prior transaction should exist. Brand and Goodwill, by accounting principles, are only recorded after they are transacted the first time. What that means is: Say you start an enterprise. The enterprise over its lifetime acquires a Brand value. However, you cannot record that Brand value until the enterprise is sold to another entity. Only in that scenario, can the buying entity record it into it's Books as Asset.

EDIT: IP, Copyright or Patents on the other hand can be recorded as Intangibles because you "bought" it from an issuing entity (the Government or any other body which is issuing you the certifications in exchange for a monetary value). Hence a transaction exists prior to the recordation in the Books which has valued the asset.

EDIT: To explain better: The reason you cannot record a Brand value into the Books until it's either sold/acquired is primarily because there is no way to gauge the value of Brand/Goodwill. I may consider my enterprise Brand value to be a million dollars. But you might consider it to have no value. Unless a transaction occurs, a value cannot be arrived at as it inherently has no value. Hence the recordation in the Books happens only and only after a transaction takes place.

This is a good post. 1/ I am not sure if it matters that social good is hard to value. Even a sloppy metric, even just a boolean – e.g. environment neutral vs negative – serves the purpose, because by simply existing, people can point at it, tweet about it, start to ask questions, apply peer pressure. A couple good catch phrases is enough to get elected. 2/ I think we probably will figure out how to value things like this in the future. A friend of mine suggested that applying options pricing theory might be interesting - air pollution doesn't have a value today, but it could have a very high value someday in a future worst-case scenario. But that's all above my head and I see that you are much better versed on accounting than me.

(I see now our replies crossed so will leave this and stop posting :)

Thanks for the explanations. On the transaction front, what about share trading activity based on Value statements or actions that impact Brand/Goodwill etc? Though the sale of shares is a future transaction, a company could reasonably conclude something like:

We will make X and Y the value statements of our company/brand. If our actions reduce the value of X and Y statements, what will that cost us? This at least would provide a 'rough' starting value, to be reviewed/measured against market response. Do companies already do this? I'd think it important for service/advertising based companies (but I am guessing, I have only couch-potato knowledge).

Here is a one attempt at using environmental, social and governance (ESG) integration factors to create an index of companies that are measured beyond just the basic plain vanilla profitability/market cap metrics:

https://www.msci.com/esg-ratings

https://www.msci.com/research/esg-research

Recommended watching the following TED video to introduce the topic: https://www.ted.com/watch/ted-institute/ted-state-street/aud...

Slightly offtopic too, but I would love to hear suggestions for good books on economics and/or philosophy that would discuss non-monetary profit and values.

https://www.theguardian.com/sustainable-business/2014/oct/01...

An alternative approach I’ve long been fond of is to lengthen time horizons. In the long run, bad behavior is much more likely to come back and bite you. If you can get incentive structures on a longer term time horizon, you’re much less likely to engage in risky behavior that might have short term payoffs but sinks you in the long run.

Here's an interesting paper by some Columbia grad students that I've been meaning to read: http://sustainability.ei.columbia.edu/files/2014/07/Navigati...

Also check out the MSCI links in my other comments to this thread if you have a chance.