Saturday, March 18, 2006

Get it right the first time

Let’s make a list of notable corporations with accounting issues: Tyco, Enron, World Com, and Adelphia. And then there’s the countless number of corporations that have had to restate the financial statements for less significant accounting errors. Today I read that GM has had to restate its financial statements. Obviously GM’s restatement should not be considered in the same degree of significance of the previously mentioned firms. However, I find a restatement by such a stalwart firm disturbing.

Let’s make something clear – restatement of financial statements due to a correction is a bad thing. Years ago when I was an accounting student, restatement of financial statements for an accounting correction was a rare event. And so it should be. The fundamental concept is that financial statements are to be issued in accordance with generally accepted accounting principles. Translation – get in right the first time!

I deeply believe that the fundamental approach to full and proper disclosure should be to properly classify all transactions, regardless of effect on the income statement. You do not allow your judgment of the treatment of an accounting transaction to be affected by its ability to satisfy some performance goal or quarterly performance. In a single word – ethics.

The accounting professional is always ultimately accountable to society. This can range from externally published financial statements to the preparation of internal financial statements that are used to prepare the organization’s tax return. Ultimately society relies on the full and proper disclosure of financial information.

1 comment:

W. Ian Blanton said...

Gaaary! Full text feeds on your XML! :)

Part of the problem is that to most folks, you say accounting, and you might as well say "witchcraft". Folks have no idea how this stuff works, or even that a restatement is a bad thing.

Transparency doesn't do us a lot of good, when people don't even know what they see through the glass....