Volume 17, Nos. 1 & 2

 

Accounting Issues:  2007 Reviewed, 2008 Previewed  Investors and analysts wanting to know where accounting is in most need of repair - because of abuses, financial innovation, or some combination of both - would do well to review the FASB’s docket. Every year, there’s something new added simply because the information available to investors needs to be improved. Sometimes investor information needs improvement because new kinds of deals skirt rules around existing standards and disclosures; sometimes information needs improvement because the governing accounting standards were never very good in the first place.

So, if accounting is the language of business and investing, and an issue is important enough to make it to the standard-setters’ agenda, investors ought to pay attention. It means that the "language of business" needs repair, and there’s an information gap that affects investors.

Another incentive to watch the FASB agenda: when accounting standard proposals turn into accounting law, corporate behavior can change. When a new accounting standard improves the measure of a corporate asset or liability, managers behave differently. Investors should understand it themselves, to be able to evaluate managers’ actions. Investors choosing to ignore what’s hot in accounting do so at the risk of missing meanings in "the language of business."

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