Accounting changes are coming, and I feel fine

With all apologies to REM It's the end of the world as we know it, and I feel fine.

A New Vision for accounting:

"Some of the major changes under discussion: reconfiguring the balance sheet and the income statement to follow the three categories of the cash-flow statement, requiring companies to report cash flows with the little-used direct method; and introducing a new reconciliation schedule that would highlight fair-value changes. Companies will also likely have to report more about their segments...Meanwhile, net income is slated to disappear completely from GAAP financial statements, with no obvious replacement for such commonly used metrics as earnings per share."

As the replacement for EPS, let me suggest cash flow from operations per share.

Now the final product is far from done and there are many detractors. From the same article:

"FASB, working with the International Accounting Standards Board (IASB) and accounting standards boards in the United Kingdom and Japan, continues to work out the precise details of the new financial statements. ...If the standard-setters stay their course, CFOs and controllers at every publicly traded company in the world could be following Kelly's lead as soon as 2010... "

The article then goes on to say that many do not want to see the changes. for instance:

"December CFO survey of more than 200 finance executives, only 17 percent said the changes would offer any benefits to their companies or investors"

Of course there will be problems, but a move to more transparency and cashflow measures will be a good step. Sure the new reports will at first be more difficult to create and there will be more line items, but it is important to remember that managers and accountants have a large investment in the current system and as a bunch not known for being enamored with change.

Further, managers in particular often have a vested interest in preventing transparency so that CFOs and accountants are against the new changes may say less about the changes and more that they are just REMMS that do not want to lose their informational advantages.

Read the entire CFO piece here.


* Thanks to MBA Depot for pointing this one out to me! Oh and I know I have used the REM reference before, but figured I have to give Michael Stipe some credit since I have been accused of looking like him. I feel really sorry for him!

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[Source: FinanceProfessor.com]