AFM 101 - Article Summaries
Framework for financial reporting: trying to make a new standard (or framework) for the reporting of assets and liabilities, changing from historical cost to a fair market value. However, hard to agree on what fair value is. Can be exit price
(how much you would sell the asset/settle the liability) or entry value (cost of replacing). !
!
Good judgments: We are unconsciously biased which can hurt auditing. Affected by first impression, taking the easy route, believing what we are told and what we want, and initial position. To prevent unconscious bias, look at it from different perspectives, evaluate management’s methods, don’t give more weight to evidence supporting management and less to those against it and to clearly state an issue.!
!
Moral laws within corporations: a oil and gas company tries to bribe another country’s official to allow them to setup. Do corporations have a moral or just try to maximize shareholder’s value? To bridge the gap between social responsibility and financial management, accountants fit that role perfectly. They need to know when to wake up the captain. !
!
How to make it easy: direct vs indirect cash flow statement, direct provides more information, easier to read, however is more expensive. !
!
Apples, oranges and outliers: New accounting metrics are being implemented to measure things like market value and intangibles to give investors more info on their business. This causes relevance of info to be lower. !
!
Four Reasons Non-GAAP Metrics Are Exploding: 1) companies want to report smooth results whereas users want to see a fair representation of their current situation. 2) historical costs do not represent the current situation, and users want to see more information even if it’s recorded at fair value. 3) some ways of measuring using GAAP aren’t updated enough and still based on estimates, not useful if you need exact number for decision making. 4) some GAAP methods aren’t money
(how much you would sell the asset/settle the liability) or entry value (cost of replacing). !
!
Good judgments: We are unconsciously biased which can hurt auditing. Affected by first impression, taking the easy route, believing what we are told and what we want, and initial position. To prevent unconscious bias, look at it from different perspectives, evaluate management’s methods, don’t give more weight to evidence supporting management and less to those against it and to clearly state an issue.!
!
Moral laws within corporations: a oil and gas company tries to bribe another country’s official to allow them to setup. Do corporations have a moral or just try to maximize shareholder’s value? To bridge the gap between social responsibility and financial management, accountants fit that role perfectly. They need to know when to wake up the captain. !
!
How to make it easy: direct vs indirect cash flow statement, direct provides more information, easier to read, however is more expensive. !
!
Apples, oranges and outliers: New accounting metrics are being implemented to measure things like market value and intangibles to give investors more info on their business. This causes relevance of info to be lower. !
!
Four Reasons Non-GAAP Metrics Are Exploding: 1) companies want to report smooth results whereas users want to see a fair representation of their current situation. 2) historical costs do not represent the current situation, and users want to see more information even if it’s recorded at fair value. 3) some ways of measuring using GAAP aren’t updated enough and still based on estimates, not useful if you need exact number for decision making. 4) some GAAP methods aren’t money