Net Now - Valuing UX Design
Wednesday, January 28, 2004
More on accounting (can you tell i just finished reading "The Smartest Guys in the Room"?):

I was looking for a business definition of the term “pro forma” and I came across this site – it’s kinda crappy, but I’m really intrigued by the idea: www.ventureline.com. I was looking this up because in latin pro can mean “before” or “as good as,” and I found it funny that the debate surrounding the value of pro forma analysis is around whether it is “as good as” SEC filings, but I was pretty sure that it meant “before” SEC filing – BTW, in the accounting glossary at venture line, it means “before” (e.g. financial statements in their “before form,” pre GAAP and pre closing of the books). Ironically, I think it has come to be perceived as meaning “as good as” since the heyday of the 90s (e.g. a lot of people think that SEC fillings are limiting because of strict adherence to GAAP).
As in:
- What do you mean I have to charge my $10 million restructuring costs to Net Income?! (anyfirm.com)
- I know; let's say that our tech investment writedowns are non-recurring, even though we called the run-ups recurring. (Enron circa 2001)
- Let's recognize the revenue of a 10 year software contract today, even though we haven't written the software yet (Oracle circa 1992)
- Let's capitalize and depreciate marketing expenses, it's sort of like an asset (AOL circa 1995)

Monday, January 12, 2004
Reported earnings follow the rules and principles of accounting. The results do not always create measures consistent with underlying economics. However, corporate management's performance is generally measured by acounting income, not underlying economics. Therefore, risk manamgent strategies are directed at accounting, rather than economic, performance.
--Enron in-house acccounting manual

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