I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.

The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.

Think about this old joke.

A man needs to hire an accountant. He interviews three candidates.

The first comes in and the man says "I have just one question. What is 2 +2?" The applicant replies "Four.". The man says, "Thanks for coming in. Don't call us, we'll call you."

The second candidate comes in and the man says "I have just one question. What is 2 +2?" The applicant replies "Four.". The man says, "Thanks for coming in. Don't call us, we'll call you."

The third candidate comes in and the man says "I have just one question. What is 2 +2?" The applicant replies "What do you want it to be?.". The man says, "Congratulations. You're hired."

That is why there are so many standards. In different circumstances what you want z to be in your example may vary. When I did financial analysis I was a lot less concerned with profit than I was cash flow.

The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.

And that is why you will never go anywhere in the world of accounting. You have no imagination--and imagination is what corporations and the US government are looking for in their accounting.

Also, it helps to be able to lie about the things you imagine too.

What I want to know is when government accounting is going to be required to use the same standards that are imposed on business.

The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.

That's completely fine if you're operating on a cash basis. However, when companies buy or sell goods and services, they operate on credit.

Imagine you make widgets. To make your widgets, you need special widget juice, which you buy from InterSlice. InterSlice will deliver your widget juice and give you 90 (on average) days to pay for it. Now, they've done their part of the deal, they're just waiting on the cash to show up in three months. Therefore, they are able to recognize the revenue of that sale, even though they won't get the cash until later on down the line, maybe even in the next year.

Which is why for financial analysis purposes, people only care about profits and losses insomuch as they can use them to find or project cash flows.

Sun Worshiping Dog Launcher: The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.

And that is why you will never go anywhere in the world of accounting. You have no imagination--and imagination is what corporations and the US government are looking for in their accounting.

Also, it helps to be able to lie about the things you imagine too.

I LOL'd

SharkTrager

Thread over!

dmd8605: you need special widget juice

ewwwww....

The bizarre accounting practices prominent in the business world make (some) sense if you realize this:

Companies live on credit. Credit is everything. Companies don't care all that much about how much *cash* they have, they care about how much they can *borrow*. And how long they can delay repaying the loan.

There are good reasons to run a business that way, but it also opens the door for a lot of fraud, which is what the federal government is trying to fix. They'll fail, but they have to at least make the attempt.

Can't we all just get beyond thunderdome?

The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.

In all seriousness that is probably fine for your lemonade stand, but when you have complicated tax codes and asset evaluation it gets a little more challenging.

The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.



Fascinating reading. The good stuff starts around page 32 or so...


Link (new window)

RQB1018: The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.



Fascinating reading. The good stuff starts around page 32 or so...


Link (new window)

We are going through that at work. There are some amazing differences in the capitalization and amortization rules. GAP allows you to capitalize and amortize an asset as a whole, but IFRS requires you to capitalize the components separately. For example, under GAP, you can capitalize and depreciate a car as a whole, but under IFRS rules you have to capitalize and depreciate the components, such as the frame and engine, separately. Another huge difference is that IFRS rules allow you to capitalize and amortize major maintenance, such as an engine overhaul, for the expected life of that maintenance. Maintenance is always expensed under GAP. It will interesting to see how this all will turn out.

The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.

Yeah, but if they did that how could America experience the greatness of Bernie Madoff or Enron or Worldcom or Adelphia or....

That and there is nothing cuter than a smugass know it all auditor coming by asking you what 2 + 2 is then saying your answer of 4 is wrong because you used the wrong font when writing it.

The FASB is a bunch of pussies, even by accountant standards.

I still remembers their Weeners to Arthur Andersen was "more peer review".


/Yeah, I'm one.
//And voted against peer review when it first came out in the mid 80's. Turns out I was right.

Weeners?

WTF?

cchris_39: Weeners?

WTF?

You typed something like "first", followed by the word "comment". It's a filter Fark uses to avoid the idiots who try to post comment numero uno, and then brag about it.

ral315: cchris_39: Weeners?

WTF?

You typed something like "first", followed by the word "comment". It's a filter Fark uses to avoid the idiots who try to post comment numero uno, and then brag about it.

That or he just likes weeners.

/nttiawwt

The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.

When do you record the value of something that you've bought but haven't actually turned into income yet?

Historical book value for everything... it doesn't make sense when you have things like "toxic MBS" with Other Than Temporary Impairment that has damaged the value of something that is on your books.

Then there are issues like when all MBS have hit a market environment where everything is treated as toxic, and it's fair to question whether "fair market value" at the time you close your books is actually fair. When do you determine value when there are no real trades in the market for your kind of asset? The asset should be worth something, but you're not quite sure what it is, and the market can't tell you what it's worth... but going by historical prices is not accurate, and going by market prices (due to extreme market issues) is not accurate - what's the rule?

Now, we could go back to the barter system or the gold standard, or just wipe out complex financial derivatives... but waving away financial instruments has a couple unintended consequences, like destroying liquidity in the marketplace.

/not an accountant

I can't find a screen shot of the business roundtable from the Simpsons that showed the guys in suits swinging chains above a fiery chasm. Sigh.

I'm getting a kick out of this thread because I'm an accounting major.

legion_of_doo: The Icelander: I still don't get how there can be so many different ways of accounting.

I have x dollars.
I spend y dollars.
I make z dollars.

Subtract y from x and then add z and then use that for x in your next calculation.

When do you record the value of something that you've bought but haven't actually turned into income yet?

Historical book value for everything... it doesn't make sense when you have things like "toxic MBS" with Other Than Temporary Impairment that has damaged the value of something that is on your books.

Then there are issues like when all MBS have hit a market environment where everything is treated as toxic, and it's fair to question whether "fair market value" at the time you close your books is actually fair. When do you determine value when there are no real trades in the market for your kind of asset? The asset should be worth something, but you're not quite sure what it is, and the market can't tell you what it's worth... but going by historical prices is not accurate, and going by market prices (due to extreme market issues) is not accurate - what's the rule?

Now, we could go back to the barter system or the gold standard, or just wipe out complex financial derivatives... but waving away financial instruments has a couple unintended consequences, like destroying liquidity in the marketplace.

/not an accountant

The formula to determine impairment under GAP is rather complicated. Current market values is not the only determining factor for impairment. You must also consider future cash flows, expenses, and such before you can impair an asset.

minoridiot: We are going through that at work. There are some amazing differences in the capitalization and amortization rules. GAP allows you to capitalize and amortize an asset as a whole, but IFRS requires you to capitalize the components separately. For example, under GAP, you can capitalize and depreciate a car as a whole, but under IFRS rules you have to capitalize and depreciate the components, such as the frame and engine, separately. Another huge difference is that IFRS rules allow you to capitalize and amortize major maintenance, such as an engine overhaul, for the expected life of that maintenance. Maintenance is always expensed under GAP. It will interesting to see how this all will turn out.

...A major overhaul of an engine (that thus changes the lifespan of the engine) would be capitalized under GAAP...

/this is why there are auditors...
//auditor

cchris_39: The FASB is a bunch of pussies, even by accountant standards.

Agreed. Did you see the congressional hearings on Mark-to-market accounting? Herz should've told the whole room to fark off and then stomped out of the room.

I still don't get how there can be so many different ways of accounting.

Enron taught a whole generation of financial managers how a P&L statement can be manipulated. This old joke explains how:

Capitalism: You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

Enron Capitalism: You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt-equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred through an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The Enron annual report says the company owns eight cows, with an option on one more.

whywecanthavenicethings: minoridiot: We are going through that at work. There are some amazing differences in the capitalization and amortization rules. GAP allows you to capitalize and amortize an asset as a whole, but IFRS requires you to capitalize the components separately. For example, under GAP, you can capitalize and depreciate a car as a whole, but under IFRS rules you have to capitalize and depreciate the components, such as the frame and engine, separately. Another huge difference is that IFRS rules allow you to capitalize and amortize major maintenance, such as an engine overhaul, for the expected life of that maintenance. Maintenance is always expensed under GAP. It will interesting to see how this all will turn out.

...A major overhaul of an engine (that thus changes the lifespan of the engine) would be capitalized under GAAP...

/this is why there are auditors...
//auditor

It's much, much more complicated that that. It depends on the sort of asset and the sort of overhaul. Since you're an auditor, I'll put this as simply as possible: GAAP allows the exisitence of several sorts of accountings models, including expense as incurred (and option not allowed under IFRS).

dahmers love zombie: Unimpressed:

The Crimson Certified Assurance?

/Into the rigging!

Accounting and tax rules are what they are b/c everyone wants to think their business is a unique snowflake, and can hire lobbyists to convince Congress that these alternative methods or exceptions are indeed necessary. Welcome to a 30,000 page tax code.

Moving to IASB is a matter of when, not if. Just like the metric system.

wait, wut?

Whats GAP? I know what GAAP is...

Just came to ask that if the revenue recognition change is adopted, would receivables be timed with recognition? On long projects that would play havoc with the construction industry.

In that light I can't see the change being adopted.

cchris_39: The FASB is a bunch of pussies, even by accountant standards.

I still remembers their Weeners to Arthur Andersen was "more peer review".


/Yeah, I'm one.
//And voted against peer review when it first came out in the mid 80's. Turns out I was right.

We have a hot auditor. I think I'll whip out my Weeners to ask for her review of my peeer. Maybe she'll show me her Boobies.

/this post is worthless without pics
//and proper gaming of teh filter