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(Reuters)   Companies are moving away from NWPOOOA (Numbers We Pulled Out Of Our Asses) accounting methods back to GAAP (Generally Accepted Accounting Practices), and that could be a good thing for Wall Street   ( reuters.com) divider line
    More: Obvious, Generally Accepted Accounting Principles, net income, GAAP net income, Income, Revenue, Income statement, GAAP net incomes, U.S. Securities and Exchange Commission  
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1236 clicks; posted to Business » on 20 Aug 2017 at 5:35 PM (16 weeks ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



36 Comments     (+0 »)
 
View Voting Results: Smartest and Funniest
 
2017-08-20 03:18:32 PM  
Thanks, Obama.
 
2017-08-20 03:32:56 PM  
"The closer reported earnings are to GAAP, the more confident I'd be that investors are getting a fair characterization," said Jack Ablin

So let me get this straight.  Regular accounting=good, cooking the books=bad.

I need to think on this for a bit.  I don't think I get it.
 
2017-08-20 03:37:11 PM  
This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.
 
2017-08-20 04:24:59 PM  
I think they're looking ahead to preserving their stock prices more than raising them. No reason.
 
2017-08-20 04:49:43 PM  

wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.


Just count changes in Goodwill as cash flow.
 
2017-08-20 05:01:38 PM  
Hypothetical Future-Value Accounting
Youtube hR45ja3VjGE
 
2017-08-20 05:31:30 PM  

wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.


This so much. My wife works in finance the team she is in will put together a forecast of what they think the numbers will be and then some higher up will come down and roll them to plug in deals that are no where near finished thus bumping the forecast up.
 
2017-08-20 05:40:24 PM  

not enough beer: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

This so much. My wife works in finance the team she is in will put together a forecast of what they think the numbers will be and then some higher up will come down and roll them to plug in deals that are no where near finished thus bumping the forecast up.


Record him and report him to the FTC.

/Well, it sounds good anyway.
 
2017-08-20 06:10:35 PM  
Generally accepted accounting principles, subby--not practices.
 
2017-08-20 06:59:17 PM  
Slowly but surely, the Obama Era comes to a close..
 
2017-08-20 07:08:48 PM  
Or they could move to IFRS like the rest of the civilized world.
 
2017-08-20 07:40:40 PM  

potterydove: Or they could move to IFRS like the rest of the civilized world.


GAAP has been moving towards IFRS standards for a long time now.  The major differences are pretty minor -- like the value of intangibles like goodwill, whether or not a company can use LIFO for inventory, and whether or not writing off inventory is reversible.    I tend to agree that IFRS is more sensible in most situations, but someone would have to be doing something really, really shady with inventory and/or seriously overvalue some intangibles for there to be much of a difference on the books of a Fortune 500 company.

/don't know why any sane person would use LIFO anyway -- unless the inventory is literally in a pile and a crane is used to remove chunks from the top
//dunno why anyone would want to overvalue their goodwill either --  My acct profs always described it as "whatever you paid that was more than the book value of the company you acquired"  -- basically whatever you overpaid for your asset.
///International MBA students learn IFRS in addition to GAAP and most GAAP students know it's changing to merge with IFRS anyway.
 
2017-08-20 07:49:55 PM  

KingRamze: /don't know why any sane person would use LIFO anyway -- unless the inventory is literally in a pile and a crane is used to remove chunks from the top


It allows you to report lower profits to the IRS, assuming your production costs have gone higher.
 
2017-08-20 07:54:30 PM  

wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.


Pretty much.   I may be mistaken, but I believe the SEC requires quarterly and annual reports to be published using GAAP anyway -- but companies are free to use whatever they want internally and to publish their internal accounting along with the GAAP to investors.   I think the SEC has just gotten its feathers ruffled over companies putting their Non-GAAP numbers in larger, bold fonts to draw attention away from the real GAAP numbers... and some using non-GAAP numbers to pitch deals and inflate earnings at investor meetings when the GAAP reports say otherwise.

There's some validity to using different metrics than GAAP, but it's really more important to judge a company's health by comparing it to others in its sector and its long-term potential over quarterly statements.

I've seen a lot of creative accounting to shove things into a specific quarter to meet a goal -- it's all legal and fine with GAAP, but it doesn't really fairly represent performance for that period imho.
 
2017-08-20 08:24:49 PM  

Lochsteppe: not enough beer: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

This so much. My wife works in finance the team she is in will put together a forecast of what they think the numbers will be and then some higher up will come down and roll them to plug in deals that are no where near finished thus bumping the forecast up.

Record him and report him to the FTC.

/Well, it sounds good anyway.


"I am the SEC" - Chancellor Palpatine
 
2017-08-20 08:25:08 PM  

jayphat: Lochsteppe: not enough beer: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

This so much. My wife works in finance the team she is in will put together a forecast of what they think the numbers will be and then some higher up will come down and roll them to plug in deals that are no where near finished thus bumping the forecast up.

Record him and report him to the FTC.

/Well, it sounds good anyway.

"I am the SEC" - Chancellor Palpatine


Or FTC, that works too.
 
2017-08-20 09:06:05 PM  
Yeah, basing you numbers on reality tends to work better in the long run.
 
2017-08-20 09:12:11 PM  

KingRamze: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

Pretty much.   I may be mistaken, but I believe the SEC requires quarterly and annual reports to be published using GAAP anyway -- but companies are free to use whatever they want internally and to publish their internal accounting along with the GAAP to investors.   I think the SEC has just gotten its feathers ruffled over companies putting their Non-GAAP numbers in larger, bold fonts to draw attention away from the real GAAP numbers... and some using non-GAAP numbers to pitch deals and inflate earnings at investor meetings when the GAAP reports say otherwise.

There's some validity to using different metrics than GAAP, but it's really more important to judge a company's health by comparing it to others in its sector and its long-term potential over quarterly statements.

I've seen a lot of creative accounting to shove things into a specific quarter to meet a goal -- it's all legal and fine with GAAP, but it doesn't really fairly represent performance for that period imho.


This entirely. It is the prominence of non-GAAP measures that was becoming an issue. But not just in annual and quarterly reports, but pushing them in press releases and the media.

Non-GAAP measures are important. Particularly for newer and growing companies where net income often isn't a critical metric. For example, some tech companies focus on them because R&D expenses driving losses can make a company look like it is doing poorly when it is actually doing quite well.

Their use should be limited to where there is a clear benefit and they should always be presented with clear caveats alongside GAAP measures, but they are important as an option.
 
2017-08-20 09:17:49 PM  

LoneWolf343: Yeah, basing you numbers on reality tends to work better in the long run.


Long run? Like the quarter after next?
 
2017-08-20 09:37:46 PM  

KingRamze: goodwill,


Trump claims his company's goodwill value fluctuates depending on what color dump he takes in the morning.

He's not going to support anything that would force him to factually report on his company's valuation.
 
2017-08-20 09:59:18 PM  

Sliding Carp: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

Just count changes in Goodwill as cash flow.


I think only two people understood your reference and one of them thought you were referring to the gently used clothing store Goodwill.
 
2017-08-20 10:04:32 PM  
So I'm studying for the CFA at the moment so I'm getting a kick from all the GAAP and IFRS talk and the financial statements.

I really don't have to be on Fark have to get back to Operating vs Capital Leases
 
2017-08-20 10:15:45 PM  
When I started working for a publicly traded company, I explained to my wife that "pro forma" was Latin for "imaginary".

It does seem that term has been replaced with "non-GAAP" now though.
 
2017-08-20 10:36:08 PM  

jayphat: jayphat: Lochsteppe: not enough beer: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

This so much. My wife works in finance the team she is in will put together a forecast of what they think the numbers will be and then some higher up will come down and roll them to plug in deals that are no where near finished thus bumping the forecast up.

Record him and report him to the FTC.

/Well, it sounds good anyway.

"I am the SEC" - Chancellor Palpatine

Or FTC, that works too.


Yeah, SEC is what I should have said probably.
 
2017-08-20 11:30:12 PM  

1nsanilicious: Sliding Carp: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

Just count changes in Goodwill as cash flow.

I think only two people understood your reference and one of them thought you were referring to the gently used clothing store Goodwill.


That's ok, I laughed, and you are all figments of my imagination anyway.

Maybe you know -- is 'goodwill' EVER anything other than a bribe to the Board of the company being taken over and destroyed?
 
2017-08-20 11:48:45 PM  

Sliding Carp: 1nsanilicious: Sliding Carp: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

Just count changes in Goodwill as cash flow.

I think only two people understood your reference and one of them thought you were referring to the gently used clothing store Goodwill.

That's ok, I laughed, and you are all figments of my imagination anyway.

Maybe you know -- is 'goodwill' EVER anything other than a bribe to the Board of the company being taken over and destroyed?


sure. supplier/distributor/customer contracts, existing biz relationships, etc. it's a thing.
 
2017-08-21 12:29:47 AM  

Sliding Carp: 1nsanilicious: Sliding Carp: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

Just count changes in Goodwill as cash flow.

I think only two people understood your reference and one of them thought you were referring to the gently used clothing store Goodwill.

That's ok, I laughed, and you are all figments of my imagination anyway.

Maybe you know -- is 'goodwill' EVER anything other than a bribe to the Board of the company being taken over and destroyed?


Yes. It very much is a thing. Something as simple as customer lists are an objective and verifiable fact (although valuation is very difficult).

More subjective, but still very important, things are things like a business's reputation. How many products or services would you choose one company's over another because of their reputation? I work for a major accounting firm and our largest segment, audit, is entirely based on the idea that we are more reputable than the companies that hire us.

What about human capital, you own a research company that employs some of the brightest minds in their field, those people add value to a company but they won't show up on any balance sheet.

Goodwill is everything that is valuable but doesn't show up on a balance sheet.
 
2017-08-21 12:38:23 AM  

dywed88: Sliding Carp: 1nsanilicious: Sliding Carp: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

Just count changes in Goodwill as cash flow.

I think only two people understood your reference and one of them thought you were referring to the gently used clothing store Goodwill.

That's ok, I laughed, and you are all figments of my imagination anyway.

Maybe you know -- is 'goodwill' EVER anything other than a bribe to the Board of the company being taken over and destroyed?

Yes. It very much is a thing. Something as simple as customer lists are an objective and verifiable fact (although valuation is very difficult).

More subjective, but still very important, things are things like a business's reputation. How many products or services would you choose one company's over another because of their reputation? I work for a major accounting firm and our largest segment, audit, is entirely based on the idea that we are more reputable than the companies that hire us.

What about human capital, you own a research company that employs some of the brightest minds in their field, those people add value to a company but they won't show up on any balance sheet.

Goodwill is everything that is valuable but doesn't show up on a balance sheet.


Oh, and if you don't want to get into those concepts, let's stick with hard numbers.

Companies are often valued based on an earnings multiplier. Which makes sense, when you buy a business you are typically buying the future income, not the assets which are to be used to earn that income.

A company could be worth $10 million with $5 million dollars in net assets or with $8 million in net assets. So company valuations have little to do with the assets they hold (assuming they are purchased as a going concern).

Now when you buy it you have a credit of $10 million of cash, debt, or equity, however it is funded. You then debit assets for $5 million or $8 million for the assets of the company. You need another debit to balance the transaction, that is goodwill.
 
2017-08-21 01:10:48 AM  

dywed88: Yes. It very much is a thing. Something as simple as customer lists are an objective and verifiable fact (although valuation is very difficult).
More subjective, but still very important, things are things like a business's reputation. How many products or services would you choose one company's over another because of their reputation? I work for a major accounting firm and our largest segment, audit, is entirely based on the idea that we are more reputable than the companies that hire us.
What about human capital, you own a research company that employs some of the brightest minds in their field, those people add value to a company but they won't show up on any balance sheet.
Goodwill is everything that is valuable but doesn't show up on a balance sheet.


Zackly. What would Apple's valuation be, minus customer reputation?
 
2017-08-21 09:17:33 AM  

Marcus Aurelius: "The closer reported earnings are to GAAP, the more confident I'd be that investors are getting a fair characterization," said Jack Ablin

So let me get this straight.  Regular accounting=good, cooking the books=bad.

I need to think on this for a bit.  I don't think I get it.


It's not so much "cooking the books" as "don't pay attention to the numbers that we're legally liable for, pay attention to these other totally real numbers that we talk about in our press releases".
 
2017-08-21 09:18:22 AM  
Discount window looms quietly in the background.
 
2017-08-21 09:22:41 AM  

dywed88: Goodwill is everything that is valuable but doesn't show up on a balance sheet.


The question for me is, do people ever book gains in goodwill? I feel like I only ever read about impairments to goodwill.

// maybe that's more of a sign of the times we live in?
 
2017-08-21 09:40:28 AM  

KingRamze: /don't know why any sane person would use LIFO anyway -- unless the inventory is literally in a pile and a crane is used to remove chunks from the top
//dunno why anyone would want to overvalue their goodwill either --  My acct profs always described it as "whatever you paid that was more than the book value of the company you acquired"  -- basically whatever you overpaid for your asset.


Both of these are just tricks used to hide money from the IRS. They are technically legitimate (the best kind of legitimate) but are rarely used for anything other than padding financial statements.
 
2017-08-21 09:42:05 AM  

Arkanaut: dywed88: Goodwill is everything that is valuable but doesn't show up on a balance sheet.

The question for me is, do people ever book gains in goodwill? I feel like I only ever read about impairments to goodwill.

// maybe that's more of a sign of the times we live in?


I don't knowxabout American GAAP, but under IFRS you can only reverse some impairments. You can only record Goodwill established through an acquisition, internally generated goodwil cannot be recorded.
 
2017-08-21 10:21:56 AM  

not enough beer: wejash: This will change as they start missing targets.

Then the pressure will be on for the "business-friendly" Trump Admin regulators to allow "alternative measures" of profitability.

This so much. My wife works in finance the team she is in will put together a forecast of what they think the numbers will be and then some higher up will come down and roll them to plug in deals that are no where near finished thus bumping the forecast up.


Forecasting has nothing to do with the topic at hand,
 
2017-08-21 10:57:03 PM  

1nsanilicious: So I'm studying for the CFA at the moment so I'm getting a kick from all the GAAP and IFRS talk and the financial statements.

I really don't have to be on Fark have to get back to Operating vs Capital Leases


Good luck! What level have you achieved so far? My brother spent 10 months a year for three years for his charter. It's probably one of the most grueling certifications I've ever heard about.
 
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