Video

I am Chis Nixon and I am a Professor in the accounting group Atlanta Business School in this serios
of podcast , I am going to be talking about some of the big global financial issues but in this
podcast statements let´s star by thinking about what we need financial statements are our
window we have so we have to make them work we use financial statemnet to measure the
profitability of companies to figure out why companies are profitable and whether that
profitability is sustainable equally we used financial statements to measure the financial strength
of companies we want to know how much borrowing the Company is doing so all of that gives us
an accounting model we need companies to provide a balance sheet that’s complete in their
assets and liabilities and is valued at current values or more precisely that measures the
opportunity cost of those assets and liabilities and we income statements that measures income
comprehensively the good news is that gap that IFRS US GAAP the accounting rules that
determine what should go into financial statements gap gets the model gas has made big strides
in recent years in giving us the balance sheets we need yes balance sheets we need yes balance
sheets are irrevocably at historic cost and it´s true that they are never going to show they´re very
valuable intangible assets that some companies have but we con live with both of those things as
long as we understand it GAAP now makes companies tell us very clearly the so called OCI of the
business the their comprehensive income that is the profiths and losses that bypass the income
statement altogether and for some companies the cmount of traffic going through OCI is quite
extraordinary so again the data is there for us to use we must make sure we us it i conclude taht in
terms of accounting model GAAP is in pretty good shape the problema is not the model is not the
level of detail in disclosure that we need around that model and this is something you can not
easily legislate form companies come in all shapes and sizes and it would be imposible to legislate
for the particular disclosure that you need froms each different beast in the corporate jungle so
instead you rely on top management to embrace the principle of disclosure and of course you
rely on the auditors to pólice send enforce it there are number of áreas where we are not geting
the detail we want let’s take just one example which is segment disclosue in any Company of some
size and complexity what we’d ideally like is the accounting model for each of it is main segments
and GAAP has the right idea the GAAP principle is that companies should disclose the same
segments that top management use for measuring performance internally but we are clearly not
getting that we can look at the financial statements and some large reputable companies and we
just can not believe that management is are monitring internal perfomance at the high level of
aggregation that we are seeing in segment disclosures clearly of principle of segment accounting is
not working in practice also we have relied on demand leading supply that is we are relied on
companies produciong financial information in response to the demand from investment analysts
was a very well funded insutry and as a result all stakeholders were able to take a free ride on the
aout put of investment analyst funded frequently by the big investment bank that Golden ages
now over many small and even médium sized companies have very limited analyst coverage and
perhpas as a result their financial statements limited on disclosure unfrequently quite opaque and
many companies are abandoning public aquity makets altogether and gained prvate americans
have a particulary graphic phrase for this they call it and going dark in the us the loss of
information when a Company goes private is particularly Sharp because there is no legal
requirement from the SEC to publish accounts under GAAP at all if you are a private Company with
hindsight we might look back at the 20 th centry as the high point of public market capitalism we
have to make sure that it is not correspondingly the high point for financial disclosure and financial
reporting