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Accounting Not Black-and-White

by Graceanne Bowe

June 25, 2012

Graceanne Bowe, Senior Director, WIS

When I think of accounting, I think of neat ledgers filled with rows and columns of figures that are correct to the penny, and crisp reports that accurately display the financial health of a company at any given moment. And if you ask me how I would describe accountants, I might say that they are very precise, dealing only in black-and-white facts, with no room for shades of gray. 

So when I opened this morning’s Accounting and Tax Newsletter from CFO Magazine, I was immediately intrigued by the headline:  “The Imprecise World of Accounting.” 

According to Hans Hoogervorst, chairman of the International Accounting Standards Board (IASB), the math needed to make accounting work is very scientific; however, the various accounting methods, measurement techniques, and reporting standards in place around the world are not. Some of the areas most likely to trip up companies include: 

Asset valuation—should it be based on market value or historic cost? 

Intangible assets—how are they identified, and how should they be recorded on the balance sheet? 

Other comprehensive income (OCI)—how is it defined, and what is its relationship to net income in indicating the performance of a business? 

Clearly, these are questions that must be answered before the math can be applied.  As domestic and global acco unting standards fluctuate, and as new standards, such as IFRS, are introduced, accountants and other finance professionals must be able to deal with uncertainty and imprecision. 

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