Tuesday, March 30, 2010

Henry Waxman: Time for an Accounting 101 Course

It is sad to see when career politicians try to do anything resembling Finance.

Accounting basics: when a company experiences what accountants call "a material adverse impact" on its expected future earnings, and those changes affect an item that is already on the balance sheet, the company is required to record the negative impact--"to take the charge against earnings"--as soon as it knows that the change is reasonably likely to occur.

This makes good accounting sense. The asset on the balance sheet is now less valuable, so you should record a charge. Otherwise, you'd be misleading investors.

The Democrats, however, seem to believe that Generally Accepted Accounting Principles are some sort of conspiracy against Obamacare, and all that is good and right in America.

Hell, I learned this stuff in Business Administration in High School. Maybe Waxman was asleep in this class or something. Companies need to take charges as soon as possible so they don't run afoul of the SEC or Sarbanes-Oxley problems. Didn't Waxman help draft that bill? Shouldn't this be common knowledge for the head of the "Commerce" Committee?

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