Accounting and Trust Q Are financial reports reliable and objective n The inherent limitation of financial accounting Monetary measurement: penny wise and pound foolish Where to put Bill Gates on Microsoft's Financial Statements? Historical cost, accrual basis, periodic report: Financial reporting are lagged, no matter good news or bad news; n Be aware: all managers, including accountants, are REMMS Accounting comes down to the-vehicle-for-bank-ro bbers (EAll the blames to accounting for its "unique role" in Yinguangxia, Enron, WorldCom, etc. Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
6 Accounting and Trust ⧫ Are financial reports reliable and objective? The inherent limitation of financial accounting; →Monetary measurement: penny wise and pound foolish; ➢ Where to put Bill Gates on Microsoft’s Financial Statements? →Historical cost, accrual basis, periodic report: ➢ Financial reporting are lagged, no matter good news or bad news; Be aware: all managers, including accountants, are REMMs; →Accounting comes down to the-vehicle-for-bank-robbers; →All the blames to accounting for its “unique role” in Yinguangxia, Enron, WorldCom, etc
Accounting and Trust Q To assure the reliability of accounting information, many mechanism are devised and employed; n Periodic and timely disclosure; I Full disclosure; D Accounting standards: - Why generally accepted? D Auditing: Additional tool to assure the reliability of accounting information, Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 7
7 Accounting and Trust ⧫To assure the reliability of accounting information, many mechanism are devised and employed; Periodic and timely disclosure; Full disclosure; Accounting standards: →Why generally accepted? Auditing: →Additional tool to assure the reliability of accounting information
Accounting Standards a Trust Perspective O REMMS push the lines as hard as possible; Q Executives will abuse accounting numbers given that these numbers are essential in their performance evaluation n Incentive to manage and manipulate earnings. Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
8 Accounting Standards: a Trust Perspective ⧫REMMs push the lines as hard as possible; ⧫Executives will abuse accounting numbers given that these numbers are essential in their performance evaluation; Incentive to manage and manipulate earnings
Open discussion Q Revenue recognition criteria n Earned process done, considerations guaranteed ◆ How to account for n Sell and repurchase transactions? d Sell and lease-back transactions The criteria satisfied -But they are financing in substance Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
9 Open discussion ⧫Revenue recognition criteria: Earned process done, considerations guaranteed; ⧫How to account for Sell and repurchase transactions? Sell and lease-back transactions? →The criteria satisfied; →But they are financing in substance;
Accounting Standards a Trust Perspective Q In order to solve the disputes on accounting choices, agreement on the set of accounting choices is necessary, o We define this as accounting standards 0 It is also named as GaaP in US Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 10
10 Accounting Standards: a Trust Perspective ⧫In order to solve the disputes on accounting choices, agreement on the set of accounting choices is necessary; We define this as accounting standards; It is also named as GAAP in US;