Not Counting (Part 2)

So what turned accounting into the enemy?

Why is the Financial Accounting Standards Board the investor’s enemy? After all, all the accountants I know are decent people who care deeply about their work and love their families and pay their bills. So why has their profession cranked out rules upon rules that seem to defy common sense and leave the educated layman scratching his head?

In a word, interest.

The rulemaking body is dominated by the Big Four accounting firms. Based on the size of the firms audited, KPMG, Ernst & Young, Deloitte, and Pricewaterhouse evaluate 99% of the financial statements in the US. When a new issue comes up, of course these guys influence the body’s ruling. And for some reason, FAS always find a solution that is more complex.

This increased complexity has two effects. First, you can’t boil earnings down to a single number. Maybe you could once, but now the footnotes are just too important. Second, this increased nuance has functioned as a full-employment act for accountants. And an overreliance on financial rules can distort the system, as we’ve seen before.

When no one understands the numbers, the numbers just don’t count.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T18:06:49+00:00 March 22nd, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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