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The Accounting Onion [EN]

Financial Accounting’s Relevance Lost
My best insights (but who am I to judge?) come from reading something for which accounting is the furthest thing from the author’s mind: “My own view is that people tend to underestimate the pace of technological change but they tend to overestimate the pace of human change. That is, if you go back to past visions of the future as they were displayed in world fairs, for example, they generally fail to anticipate how quickly we will invent things like wireless communication, but they always imagine that social structures will change faster than they actually do. They imagine people living without nuclear families, without dysfunctional political squabbles. They imagine that technology will streamline and rationalize social institutions. That never happens.” [emphasis added] David Brooks, a moderate conservative, and  his liberal colleague, Gail Collins, are widely read NYT columnists in their own rights.  A couple of years ago, they decided to collaborate on “The Conversation,” a series of columns that is adequately described by the series title.  That these two can have a humorous and constructive give-and-take in this polarized political climate is worth noting all by itself. But, more to the point, the above statement from Brooks struck the nerve [Read More...]
How Deferred Tax Accounting Blunts Government Incentives to Invest in Renewable Energy
One of the items in my inventory of pet peeves when I first started blogging (six years ago!) was interperiod tax allocation, familiarly known as “deferred tax accounting.”  I’ve always objected to it on theoretical grounds, and know that it owes its existence to political conspiracy. The theoretical issues are pretty much covered in college textbooks, so let’s review them extremely cursorily: Are the potential future tax consequence of book/tax basis differences appropriately recognized as liabilities or assets?  Not in my world.  For one thing, if a company incurs losses, it won’t have future taxable income, and hence, won’t have to pay any income taxes at all. Assuming that a deferred tax liability/asset is appropriate to record, is it appropriately measured without taking into account the time value of money?  Of course not, silly! The political conspiracy angle is, somewhat understandably, given shorter shrift in the textbooks, and it derives from the theoretical questions.  An empirical fact that I myself tested a number of years ago is that the ratio of reported “current tax expense” to reported net income before taxes is significantly lower than the statutory corporate tax rate.  This is often due to timing differences like accelerated depreciation for the corporate tax return, [Read More...]
Has Convergence Been a Mixed Bag or a Bag of Fertilizer?
Continuing with my theme of the U.S. GAAP/IFRS convergence misinformation campaign being waged by the Journal of Accountancy, the latest and greatest example is an article from the February edition, “What have IASB and FASB Convergence Efforts Achieved?” that appeared in the February issue.   That’s a big question to get one’s arms around in a slim magazine that can devote at most six or seven pages to one article.  So, it’s informative to see how author Paul Pacter handled this weighty question.   The centerpiece of the article, and to my way of thinking its most useful part, is a four-column table listing all 37 convergence project.  The other three columns describe the actions taken, the convergence outcome— and whether, in Mr. Pacter’s (a recently-retired IASB member) opinion, the project resulted in an improvement to IFRS.    After the table, there’s not much to the article.  JofA is formatted like a conventional magazine with 3 columns per page.  Within the non-table pages, the text adds up to about four columns—and, I’m not exaggerating, only three paragraphs directly address the topic promised by the article’s title.  Honestly, I don’t know if I have ever seen an article posted any journal with a table longer than the ...
Don’t Rely on “Journal of Accountancy” for Balanced Reporting of IFRS
In the main, the only reason my wife and I subscribe to magazines and newspapers in hardcopy is because she prefers them.  I much prefer to get as much as possible from the web; the lone anomaly being the Journal of Accountancy, which I have ...
Caterpillar: Another Sad Example of Bad Goodwill Accounting
After having just written a post on HP’s massive write-offof goodwill, I am reluctant to keep on banging the drum of how bad goodwillaccounting can be.  But, I can’t resistfollowing up on Bloomberg columnist Jonathan Weil’s coverage of yet another recentacquisition by a big-time company ...
HP’s Autonomy Debacle: Mistakes were Made — and Capitalized?
Companies overpay to acquire other companies all the time; but Hewlett Packard Co. just might be the new record holder for getting fleeced. I don't have the exact amount, but let's say that the goodwill HP initially recorded from the E.D.S. and the Autonomy ...
The Death and Transfiguration of “Substance Over Form” in U.S. GAAP
Over the years, the notion of accounting for "substance over form" has been trumpeted in IFRS circles as the apotheosis of principles-based accounting. From a practical standpoint, something like it is absolutely necessary for filling in the large gaps in specific guidance and the paucity ...
Why Nothing Sticks to Auditors when Loans Go Bad
I read numerous news sources this week echoing the SEC's announcement that it finally has a case it thinks it can win against auditors stemming from the 2008 financial crisis. One journalist, Jon Weil of Bloomberg, takes it a step further to ask, 'What took ...
FASB Pretends It Never Voted to Mark Loans to Market
I will have a lot to say about the FASB's recent publication of its proposed revisions to the accounting for loans over the next few months. In particular, I'm going to vivisect the horrendous "basis for conclusions" section of Proposed Accounting Standards Update 2012-260. To ...
“Double Entry”: A Tale of Two Books
If you are looking to buy a holiday present for an accountant, then you should consider Double Entry: How the Merchants of Venice Created Modern Finance. It's a pretty fast read – both for its moderate length (256 pages) and for Jane Gleeson-White's graceful and ...

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