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Date: 2019-07-20 Page is: DBtxt001.php list0300-Creative-accounting-1

Definitions for TrueValueMetrics
Creative Accounting

Creativity. Not welcome in accountancy

Part of the genius of accountancy is that it is a system with no brains ... it serves as a very simple robot that merely knows how to put transaction information into the right location in a very simple analysis framework. In other words accountancy requires absolutely no creativity ... and in fact needs to be structured and to manage its affairs so that data are neutral and creativity totally absent.

Accounting creativity has no place in performance metrics and reporting ... but such creativity has been given a place by allowing basic accounting principles to be subverted by laws, rules and regulations that are convenient but not principled.

Wrong ... any way you look at it!

Law, rules and regulations that allow important liabilities to be left off the balance sheet of a corporate entity are just plain wrong ... though law makers can make such reporting legal.

  • Companies like General Motors were allowed to report in this manner for years ... but in the end real reality caught up with the legal fiction.
  • Banks and financial organizations were allowed to report unrealized profits on their asset portfolio using a “mark to market” construct ... but it caught up with them when the real world market stumbled and the real value of their assets turned out to be a fraction of the reported balance sheet values.
This reporting is wrong ... any way you look at it!



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