David M. Katz, CFO.com | US
August 1, 2008

LIFE SAVER

Thank you for the useful information and continue to do the good work.

Posted by Tamieka Wright | Oct 7, 2008 4:43 PM ET

Anticipate No Profit and Provide For All Possible Losses!!!

When I went to school in early 1970's, I was taught that a fundamental principle of accounting was what used to be called Conservatism.

And Conservatism meant that, in accounting for completed transactions, an organization should anticipate no profit, and provide for all possible losses.

This made sense then, and it makes sense now. Why? Because it resulted in financial statements that were as objective as possible, and more importantly, free from the bias that results from anticipating profit, before a transaction is completed.

Of course, as time went on, certain financial statement elements were stated at market prices or reasonable approximations thereof.

For example, inventory is stated at Cost or Market, whichever is lower; Accounts Receivable is stated at Cost, less an allowance for doubtful accounts; and Marketable Securities are stated at market prices in exisence at the date of the Statement of Financial Position.

But now, the headlong move to Fair Value is threatening to turn the historical cost and Completed Transaction Approach to financial reporting on its head.

It could do this by introducing such a huge amount of complexity, confusion and uncertainly to financial statement presentation and reporting, that it threatens to make financial statements useless as tools for judging enterprise performance, the performance of management, and allocating capital to its most efficient and effective use.

The SEC Advisory Commitee on Financial Reporting was wise to recommend that the FASB go slow in expanding the use of Fair Value in financial reporting.

Posted by Larry Hightower | Aug 6, 2008 9:55 AM ET

Consistency

If we are ,and we are, migrating to a more principle based paradigm then why is the SEC and the FASB still piling on rules based dogma.

Posted by rick macchiarulo | Aug 4, 2008 9:01 AM ET