(Part 1 is here.) I have found that a useful way to home in on the drivers of audit quality is to regard an audit as two distinct engagements: (1) verifying facts, and (2) assessing whether management’s estimates “appear” reasonable.…
I was recently invited to make a presentation to a conference of auditors. The leadership asked me to address “professional skepticism,” one of those difficult-to-nail-down ideas, yet a recent point of emphasis in PCAOB inspections. The person who invited me knew…
A long time ago — in 2004, to be exact — the FASB and IASB announced that they would jointly develop a common “conceptual framework.” They divided the work into eight phases. It took them almost seven years to complete the…
There is more to the securities laws and their administration by the SEC than just the ’33 and ’34 Acts. The Investment Company Act of 1940 focuses on disclosures by mutual funds and similar entities; and the Investment Advisers Act…
My Shareholder Oriented Financial Accounting (S-OFA) Standards will require that debits equal credits. Duh. But if I am truly going to start with a clean sheet of paper, then I am compelled to explain how double-entry accounting serves a purpose. I see three…
I’m starting a company and I want you to invest. I will put up $100 of my money for $10 million of yours. I will own 100 shares of voting stock, and you will own 10 million shares of non-voting…
My latest post was about general problems with asset “impairment” accounting — its absurdity, high cost and dubious information value. And I haven’t even begun to hone in on the wurst part: goodwill impairment. It is somewhat more challenging to think about recognition…
Two recent news items have made this an opportune time for a post — actually, two posts — about the accounting for the “impairment” of an asset. The SEC is considering whether Exxon violated the securities laws by failing to record an…
Last December, I announced that I have started to write a book that would propose a very different basis for financial accounting by public companies. I’m calling it ‘Shareholder-Oriented Financial Accounting’ (S-OFA), and this is the opening paragraph I have in mind:…
It seems there is always good reason to write a post about revenue recognition. I can even envisage an entire blog on the FASB’s new standard (ASC 606). It could go on for years without running out of fresh material. That…