IASB & FASB crank out revenue sausage

They say once you’ve seen sausage made, you’ll never eat it again. In this sense, sausage and accounting principles may have something in common. Since 2004, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have been jointly engaged in an effort to create an accounting version of what physicists might call a “revenue theory of everything.”

Arguably, revenue is the single most-watched line item in company financial statements. You’d think it would have received lots of standard-setting attention in the past, but it hasn’t. We might call it U.S. GAAP’s “missing link”. For all of its pretensions to “quality” and “rigor,” U.S. GAAP has no general standard for recognizing or measuring company revenue. Hard to believe? Not if you knew how accounting sausage is made. But revenue is one important chunk of sausage and its getting lots of attention nowadays from both IASB and FASB. Continue reading

IFRS looming: U.S. accounting in transition

International Financial Reporting Standards (IFRS) are looming quickly for U.S. companies. A good sign of how quickly is SEC Chairman Cox’s speech at IOSCO, in Paris on May 28, 2008 where he referred to IFRS as the world’s accounting “lingua franca”. Another telling signal is that accounting firms and academics are getting together to talk seriously about the IFRS transition. On May 15-16, 2008, I attended a Deloitte Touche and Federation of Schools of Accountancy Faculty Consortium, in Chicago. IFRS was the theme. This post summarizes my notes on the event.* Continue reading

EU treaty ship wrecks: Ireland rocks

Lucky or smart, Ireland has rejected the EU bureaucracy’s latest attempt — called the Treaty of Lisbon — at extending is power. A strangely bitter-sounding International Herald Tribune reports:

Europe was thrown into political chaos Friday by Ireland’s rejection of the Lisbon Treaty, a painstakingly negotiated blueprint for consolidating the European Union’s power and streamlining its increasingly unwieldy bureaucracy.

Political chaos? Painstakingly negotiated? Can you say, “Drama queen”? Continue reading

EU’s Treaty of Lisbon foundering on Irish coast?

Like a lumbering Spanish galleon, the European Union’s most recent attempt at increasing its influence at home and abroad — the leviathan Treaty of Lisbon — has run into heavy seas off the coast of Ireland. The International Herald Tribune reports:

DUBLIN: The final straw, Dermot Gilmartin said, was seeing an official struggling on television to answer questions about the topic of the hour: the European Union’s Lisbon treaty, on which Ireland will vote in a referendum Thursday. Challenged on a technical point, the official sputtered, frantically began rifling through his papers and fell silent.

For two and a half minutes.

“I was cringing for the guy,” said Gilmartin, 25, as he made his way to the local pub one recent afternoon. But pity aside, Gilmartin said, why should he vote for something so abstruse that even someone whose job it is to understand the treaty cannot explain away its mysteries? . . .

I don’t have a vote, obviously. But my take on the treaty is that it would drive the EU further toward the U.S. model in which centralized bureaucracy grows far beyond the good of the people and territories over which it exercises power. For the good of Europe, its member states need to retain as much as possible of their individual sovereignty.

In this regard, the United States went off the rails by 1913 with the ratification of the 16th and 17th Amendments to the Constitution and the legalization of individual income tax.

We should know more later today.

Arbitration is not for everyone

Illustrating yet again that a decisive majority — including the editors of the Wall Street Journal — can be wrong, 82 percent of respondents in a survey commissioned by the Obama campaign favored out-of-court arbitration over traditional courtroom litigation. The Wall Street Journal’s write up, “No Lawyers, Please,” notes that “most Americans do not want their day in court. Rather, they prefer cheaper and faster methods of settling arguments.” If cheap and fast are the criteria, why not just roll dice or bring back duels? Continue reading

Jeff Skilling is innocent

SkillingWhat do Enron and Bear Stearns have in common? If you’re a Bear Stearns exec, you’d better hope the answer is “not much.” At least you won’t have to litigate in Houston. New York’s a bigger, better melting pot when it comes to judges and juries. Prosecutors and governors? Don’t change the subject!

Today, a colleague wrote: “Do you think Skilling is innocent including of the insider trading charge?” Here’s my relatively off-the-cuff answer, understanding that a few months ago I did a presentation on the subject of “honest services fraud,” the legal theory on which Skilling was presumably sent to jail. For some accounting professionals and jilted investors — who want to believe that there’s only one true “net income” for any company in a given year and that someone must be at fault any time a stock “goes south” — this won’t go down easy. I feel confident, however, that fairness will eventually trump emotion. Continue reading

Société Générale’s U.S. Legal Torture Begins

It was bound to happen some time. It’s what you get, as a European company, for daring to market your shares (usually in the form of ADRs) in the United States. By providing extensive disclosures about how Jerome Kerviel whacked the the bank for nearly € 5 billion, SocGen also empowered Weiss & Lurie, an American law firm, to subject SocGen to Wall Street’s equivalent of the Star Chamber. Continue reading

SocGen: Kerviel’s State of Mind & Timing his Gains & Losses

The SocGen debate continues. Thanks to Gaute Solheim who commented yesterday as follows:

[Quoting Kurt Schulzke]: “The gains and losses were all a single product of the rogue behavior of a single trader who was discovered and ushered out of the company very early in 2008.”

I am not able to follow your logic here. If the rogue behaviour had resulted in record gains in early 2008, and he had been ushered out of the company for trading outside his limits, would it then be more “true and fair” to put all the gains from all the different trades he did in the 2007 result since they were “a single product”?

I have a hard time figuring out where in the IFRS a persons intent for “rogue behaviour” is treated as a cause to bundle together independent trades that otherwise would be handled independently. As you understand I am not convinced yet.

I do agree with you that IFRS is a step in the right direction, but I still suspect that SG stepped out of line here. Continue reading

SocGen, Kerviel & True and Fair View

Yesterday, in response to Floyd Norris, I offered what may fairly be read as a “clean opinion” on Societe Generale’s use of the IFRS “true and fair view” override to report in 2007 (instead of 2008) its net loss from the Kerviel debacle. Mr. Norris today responded with his entry, “Defending SocGen.” Truth is, my message yesterday wasn’t intended so much as a defense of SocGen’s accounting as of IFRS generally. But having taking up the SocGen gauntlet, I feel somewhat honor-bound to carry it at least for a while. Continue reading