GLG News by Dr. Paul Miller CPA, Professor
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
-
Truth is truth, whether it's welcome news or not
July 7, 2009
The Fair Value Deadbeat Debate Returns | www.cfo.com
Financial reporting works best, and maybe only, when it is complete and unbiased. If it is biased to manage the message, it becomes a method of distributing propaganda and all credibility is lost.The economics of gain occurrence is unarguable. If management can retire a debt for a smaller amount than the carrying value, then there are fewer liabilities and more equity. More equity means income has occurred. There is no rationality behind efforts to suppress truthful news just because you don't like it. Let's all hope the standard setters are not swayed by "visceral" impulses into the direction of keeping useful information out of financial statements. The inevitable consequence is greater risk and discounted share and bond prices, simply because users don't have access to the truth. That does no one any good.
-
October 13, 2008
Alls Fair: The Crisis and Fair-Value Accounting | www.cfo.com
undefined undefined Listen to the message and don’t shoot the messenger if you think it’s bad news. And don’t endorse public policies based on deceptive reporting. undefined undefined
-
Is it bad reporting or does naivete reign at the highest levels?
August 7, 2008
Mulling the Fair Value, Historic Cost Choice | www.cfo.com
Maybe it's just me, but these quotes from Herz and Pozen are off-base. When they suggest there could be a pure historical cost system, they are talking about something that doesn't exist and hasn't existed in a 100 years, if even then. I have to believe that Herz was misquoted or misinterpreted; I can believe that Pozen would misunderstand. Nothing will come out of this. There will be no turning back to more costs. There will be a continuing progression toward fair value accounting for the simple reason that it produces the information that users want and that society needs them to have.undefined undefined
-
Accounting for subprime investments: Denial is not a river in Egypt
April 7, 2008
SEC fails to douse debate over ‘fair value’ | www.ft.com
This article reveals the bizarre mindset of managers who (a) want to take huge risks for a shot at high returns, (b) don’t mind reporting results when they succeed, but (c) don’t want to report their losses. To put it another way, they want to invest in risky securities but report income from their ventures as if they put money into certificates of deposit. There is no legitimacy in twisting the accounting to cover up the results, and no reason to blame the chief accountant or FASB for the problem, or to expect the regulators to take them off the hook by allowing the losses to be hidden.
-
Cash flow manipulation is real
October 29, 2007
Cash Flow Manipulation – Analyzing and Identifying | theharrissolution.com
You can never judge a book by its cover or a seminar by its flier, but Harris Solutions is on to something here. If you have accepted the SCF as pure and not manipulable, you may very well want to attend to find out more about the sly maneuvers on the fringes of GAAP that pump up the operating cash flow. A couple of examples appear below.
-
Restatements are absolutely relevant and essential, without question
October 26, 2007
Post-Sarbox, Are Restatements Relevant? | cfo.com
Restatements are not triggered by Sarbanes-Oxley but are caused by management’s financial statement errors, either deliberate or inadvertent. Thus, any arguments that restatements are unimportant are fatuous. These opponents are asserting that it’s suitable public policy to allow managers to publish erroneous statements and then leave them that way. With regard to the lack of market reaction, the researchers face the persistent problem of figuring out when the market reacted. It is unwise to assume the market doesn’t know about the errors until they’re announced with the result that it’s impossible to know exactly what the market reacted to. As I see it, managers should embrace restatements as opportunities to clear the air of uncertainty that something in their statements is misleading. They absolutely should not worry about the cost of restatements. When compared with the potential effect on market cap, the out of pocket costs are negligible.
-
That’s no shadow – it’s sunlight on pension problems
September 4, 2007
Subprime Crises Casts Shadow on Pensions | www.cfo.com
The silver lining in the so-called Subprime Crisis is that it is yet another event that illustrates the need for greater quantities of more useful information in financial statements and financial reports. As long as management chooses to comply only with the most minimum of standards, they are surrounding their stock with uncertainty, which, in turn, creates risk and drives the stock value down, not up. With regard to pension funds, they are nothing more than proprietary mutual funds in which the employer’s stockholders are obliged to hold an interest, whether they want to or not. Their fortunes are linked to the management’s ability to manage this pension/mutual fund, and it only makes sense for them to be fully informed as to its portfolio and their risk exposure. In other words, that’s no shadow being cast on pensions – it’s the bright disinfecting sunlight that’s been needed for a long time.
-
Discounted cash flows – misunderstood, miscalculated, and misapplied
July 24, 2007
Improving Certainty in Valuations Using the Discounted Cash Flow Method | www.cpschumannco.com
Perhaps it’s the educational system that is at fault, but discounted (DCF) has to be among the most misunderstood analytical tool ever created. Regrettably, this paper fails to acknowledge the flaws, and the flaws of the other authors’ papers that it describes. Especially lacking is any criticism of FASB’s approach to DCF for financial reporting. On the whole, this paper accomplishes only the perpetuation of the myth that the outcome of a DCF calculation offers any worthwhile guidance for any activity.
-
The PCAOB misses the main point – by a mile
June 19, 2007
PCAOB ponders how to audit fair value | www.cfo.com
The shortage of value–based accounting expertise is real, but only in the sense that financial reporting practice is poised on the brink of a new era in which the volume of useful information is about to increase dramatically. The issue is how to get more people into the pipeline who understand that value-based reporting is not a hazard to be avoided but an opportunity to be seized. The ultimate outcome will be financial reports that are actually useful and, as such, more valuable for those who consume them. And that means more income for auditors and accountants alike. What, then, is the basis for the fear that more value-based reporting seems to create for them?
-
“The Sting” was fictional but backdating isn’t
June 13, 2007
Judge cites "The Sting" in backdating ruling | www.cfo.com
When all the dust settles, there will be no doubt that backdating was wrong, even if it wasn’t illegal. Furthermore, it will be shown that there were two reasons for its existence: poor ethical reasoning and bad accounting standards. The judge has seen through the smoke and mirrors and rightly characterized backdating to be like betting on a horse race that’s already been run; the only difference is that “The Sting” was a fictional story and backdating is as real as can be. Alas, GAAP created another fiction that should never have been published instead of the authentic truth that options are liabilities.
-
Avoiding Hasty Judgments about Sarbanes-Oxley
June 11, 2007
Dealing With Sarbox | online.wsj.com
Hasty analysis leads to hasty judgments which, in turn, produce bad decisions. Any consideration of the costs of Sarbanes should include identifying who bears the costs, what benefits are achieved, and who enjoys those benefits. Taking these points into the analysis shows that perhaps the law has produced a great deal of benefit well in excess of the compliance costs. We may never know for sure, but the political discussion must include more than the absolute cost of compliance if it is to lead to a wise decision to keep, modify, or repeal the law.
-
Actuarial Estimates are Bell-Shaped Curves
January 2, 2007
GM Cuts Benefit, Pension Cost Estimates | www.cfo.com
It’s tempting to conclude something is amiss when pension and OPEB liability estimates are revised downward. Perhaps something is wrong, but imprecision is inevitable. Without more details, financial statement users are at management’s mercy.
-
December 7, 2006
Pension Deficit Disorder | www.auditintegrity.com
There is only one point in this comment: it is not wise to focus on the so-called pension shortfall, and it certainly isn’t wise for management to strive to close the gap between assets and liability before its time.
-
Ready or not, lease accounting is going to be reformed
October 19, 2006
New Leasing Rules Could Add Assets | www.cfo.com
I believe the main issue that is or ought to be under discussion is what FASB will do in the future with regard to lease accounting. To answer that question, it is appropriate to look at the forces that are at work now and the kind of thinking that has been going on more recently. While there’s nothing wrong with looking to the past to get some insight into what happened then, it doesn’t do much good to look there if the goal is to predict the future. As I see it, forces are in place that will bring significant reform in lease accounting, especially for operating leases.
-
The new pension accounting is here, and it’s a big step forward
October 9, 2006
FASB Improves Employers’ Accounting For Defined Benefit Pension and Other Postretirement Plans | www.fasb.org
On September 29, 2006, FASB released its new pension standard (SFAS 158) that requires balance sheet recognition of a net pension/OPEB liability or asset (rarely). In addition, the accumulated unrecognized costs/gains/losses will appear in the equity section. Moving all this information out of the footnotes will greatly simplify analysis, for sure. Whether it will change market values of securities remains to be seen. More importantly, the new standard will stimulate management to pay more attention to their pension/OPEB plans because the facts will be out in the open rather than tucked away in an arcane note. One more thing: the standard is effective for public companies right away, for fiscal years that end after December 15, 2006.
-
No ifs or buts, backdating is nothing but bad news
October 6, 2006
Cox: Backdating Charges Imminent | www.cfo.com
It’s inevitable that new rules will follow from the disclosures about backdating. They will impact (a) corporate governance over compensation, (b) disclosure about stock option plans, (c) disclosure about stock option grants, (d) accounting practices to establish the measurement date, (e) auditing standards concerning verification of compensation, and (f) taxability of option grants.
-
No one wins when the truth isn't reported
October 6, 2006
FACTBOX-Retailers seen taking biggest hit from lease accounting | today.reuters.com
Lease accounting is living proof of the hypothesis that GAAP financial statements aren't useful. Shame on managers and their advisors who think they’re pulling a fast one on the markets by hiding the asset and the debt, and misrepresenting income. And investors aren’t winning when they have to make and act on wild guesses when the financial statements don’t tell the truth. Have no pity on financial institutions that promote leases because they make the statements look better.
-
It’s only rational to want to make better decisions
September 25, 2006
What Lies Behind Those "Rational" Decisions? | www.cfo.com
This book review ought to be enough to stimulate introspection by any decision makers and lead them to invest in the book. There can be no doubt that the real world doesn’t operate according to the rational decision models described in the literature. What the author seems to be after here is getting individuals to take steps to improve their own activities and reap the benefits, even if the rest of the crowd chooses to stay irrational.
-
Lease reform: good riddance to bad accounting and bad characters
September 22, 2006
FASB Formally Adds Project to Reconsider Lease Accounting | www.fasb.org
In contrast to Mr. Pugh’s assessment, many have been discontented with SFAS 13 ever since it was implemented thirty years ago. Operating lease accounting was thoroughly discredited in a 2000 research report co-produced by FASB, the IASC, and standard setting bodies from Australia, Canada, New Zealand, and the UK. It’s clear to many that capitalization will be required for all material leases, not only to produce more reliable financial statements but also to put an end to the loopholing as companies spend fortunes paying experts to produce off-balance sheet financing. The consequence will be greater market efficiency, lower capital costs for management, higher stock prices, and greater transparency. The only losers will be those who parlayed the loopholes into income for themselves by trying to mislead investors.
-
Cheap Registration means Cheap Stock
September 22, 2006
London's Junior Market Becomes Haven For IPOs | www.investors.com
Going the cheap route with your IPO, especially because there are fewer required disclosures, means there will be greater uncertainty about your company for investors and potential investors. The unavoidable outcome is lower stock valuations and risk by association. That’s not to say you shouldn’t go there, but you should think long and hard before you do.
- Subscribe to Updates
-
Leading institutions connect with Paul Miller through GLG
Most Popular Accounting & Financial Analysis News
-
Obama Expected to Sign Generous NOL Carryback Bill on Friday
November 5, 2009
-
Bank of America and The Lesson of Parmalat
September 15, 2009
-
September 6, 2009
-
The Consequences of The UBS Tax Evasion Cases
September 1, 2009
-
The Reality of UBS and Liechtenstein Tax Settlements
August 25, 2009