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Monthly Archives: September 2010
The Ones That Got Away
When we speak about the so called “truth” in nowadays accounting pratices, we might be referring to as this is the best assumption made based on what’s known. If you lost tons of money because you relied only on the flattering numbers in a company’s quarter or year end financial statement and made the investment for its “solid” business performances, you might find yourself be completely on your own for this one.
The company in which you invested in might just tell you that they did their best they could to come up with those numbers. But were those numbers telling the entire truth? Probably not. What they might not be telling you was that in order to boost up their acquisition offering for next quarter, the management needed to create “better-looking” financial statements with higher profits for this quarter, meaning they might have a substantial liability that would not be booked till after the acquisition.
Long ago, the word “accrual accounting” was born to replace the simple tallying of cash in and out. With that and other current general accounting principles, helped created goal-driven but not truth-driven accounting pratices. It allows managers to manipulate the assets and liabilities based on what they want to achieve. The author had clearly stated in his article that more disciplined accounting principles or guidances should be taken in place to better regulates and monitor how accurately decision makers are when revealing financial information. For example, he suggested that consistent discrepancies should be tracked to make sure managements are not making the some mistakes over and over again knowingly.
The article also urged the investors to scrutinise the numbers harder. Never judge a book by its cover. Knowing that even accounting numbers can be subjective, one needs to take a more closer and deeper look into the company and its managers history as well as information provided by a reliable third party before making any intuitive decision.
Posted in Accrual Accounting
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Unaccountable in Washington
The author of the article speaks about the beginning of a long process of congressional meeting into the Enron case, the largest corporate bankruptcy in the history of the United States. The limited success that F.A.S.B. achieved due to the constant meddling of Congressional members was one of the biggest contributing factors to the bankruptcy case. Had the F.A.S.B. actually got serious about making reforms of the current accounting model, like adjusting reported earnings for changes in current prices of assets, recognizing and amortizing many intangible assets that were not even seen on the balance sheet; the Enron debacle would have been easily avoided. A lot of investors along with likes of Warren Buffett and the S.E.C. also supported most of F.A.S.B.’s initiative but were given a blind eye by the Congress.
F.A.S.B should have taken a stronger stance in passing laws since Congress will at times make biased decisions since it’s clear that the law makers always serve corporate interests and not those of investors because that’s where the biggest chunk of the campaign funds lies. Enron was a crisis that could have been avoided had the Congress not intervened in accounting policies that they have little knowledge about. It’s another blatant example of the misuse of bureaucratic power proving the arrogance of a group of individuals, blinded with power, greed and money; that for a couple of dollars would sell their souls to the devil. The underlying truth which is never sensationalized or what does not come to light is the lives of the millions of small investors that get affected when these companies go bust. Who is accountable for this blatant disregard for the retailer’s wealth? Where do we draw the line?
Blogs
Each member of your group is responsible for posting a comment on the article assigned for the blog no later than the end of the week (Friday) when you present. The articles are available on Blackboard in the Readings folder. The presentation groups are responsible for the following articles:
Presentation 1: Unaccountable in Washington
Presentation 2: The Ones That Got Away
Presentation 3: Confuse About Earnings?
Presentation 4: Investors, It Pays to Mind the GAAP
Presentation 5: Pro Forma Earnings
Presentation 6: Yahoo and Google Revenue Recognition
Presentation 7: Attack Costs Aren’t Extraordinary
Presentation 8: The Gift Card Comes Wrapped in Growing Risk
Presentation 9: The Credit Crisis
Presentation 10: Called to Account
Presentation 11: Qualified Audit Opinion
Presentation 12: Going Concern Opinions
Presentation 13: A Price Worth Paying
Presentation 14: Are Foreign Issuers Shunning the US?
Presentation 15: IFRS Op Ed
Posted in The Accounting Standard Setting Process
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Terrorism and 9/11
Perhaps the FASB should consider revising the definition of “Extraordinary” to include degrees of damage. For example, with respect to the 9/11 terrorist attack, the FASB cites, among other things, the potential for future attacks as the rationale for considering all events involving terrorism as ordinary. But the truth is, since 9/11, we’ve put in place new security measures designed to thwart future terrorist attacks. And since 9/11, we’ve also successfully stopped at least a couple attempts. In addition, the public has become very sensitive to the potential danger that terrorists pose. As a matter of fact, the Christmas day bomber was stopped by average Americans who took action when it became clear they were in danger. These efforts contribute to the low frequency of terrorist attempts we see here in the United States. They also reduce the potential for terrorists to do spectacular damage to us. My point is that we live in a new world. It is time therefore to amend the rules to reflect that fact. And one way to do that is to start recognizing degrees of damage.
