Changing Accounting Standards

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What are some of the biggest headaches in accounting? I’m sure you have your favorites, but let me tell you about Doug. I called him last week to see if he wanted to go for a drink, but he was still in the office late on a Friday evening. It turns out his company adopted some of the new International Financial Reporting Standards, so he has to go back and restate the numbers, right back to his opening balance sheet at the end of 2009, and then carry the results forward using the new rules.

“As if that wasn’t enough,” he said. “We’ve got a bunch of contracts that go back ten years or more. The auditors now want proof of existence. They never asked for that before and they don’t accept the fact that we get payments each month. They want to see the actual paper. I mean, I know we have them. They’re piled up on skids at the back of the plant. But it’s really dirty back there and it’s going to take days to find all the ones the auditors want to see.”

When rules change, they never get simpler. So often you have to go back to the original transaction and interpret it in light of the new rules. And it’s not like you can plan for the change. I can’t tell you the number of times I have wished I had had the original documentation about a transaction so I could see who signed it and ask them what they were thinking at the time. Or, better yet, if I could have the emails or memos that led up to the deal, so I could understand the intentions of the parties.

Wouldn’t it be nice if you could click a button and see the documentation? Or what if charities and universities could track the trust documents and bequests in their endowments. I know a church that wanted to consolidate its endowments because many of them were tiny. The $5,000 that was a significant gift in 1960 was now almost more trouble than it was worth. It would have been helpful to have all the original documentation, so that they could approach the surviving families and/or the public trustee. Honestly, I don’t know which is Doug’s biggest headache, the changing rules or auditors’ demands, but I’ll let you know after we finally go for that drink. What is your biggest accounting headache? I’d be happy to feature some in future blogs.

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