Traditional accounting is a wonderful system for counting beans. For reporting business performance, it has a fatal flaw: reported profitability is affected by the volume of activity. Not only does this create an almost irresistible incentive to “short-termism”, it pollutes national statistics and it reinforces swings in the economic cycle by exaggerating news, whether good or bad.

Suppose, for example, Short-Term Exploitation Ltd is on course to deliver an annual return of 15 per cent. Long-Run Development Ltd is on course to deliver 30 per cent. If the bulk of STE’s activity occurs early in its life, whereas LRD’s occurs later, the return reported in STE’s early accounts can be much higher than 15 per cent and it may be many times greater than the return reported for LRD. Because they routinely send such false signals, accounts prepared strictly in accordance with International Accounting Standards Board rules probably cause more economic damage than all the high-profile financial scandals put together.