eunicee jotted on Thursday, March 26, 2009 @ 5:07 PM
Follow with me if you can understand abit of accounting. it's really interesting. (at least to me)
today i was sitting in FRS class, talking about the gaps in General Accepted Accounting Principles in the area of Balance Sheet. then we talked about the research done by Professor Lev whereby the market to book ratio is a whopping 7:1. (in other words, the balance sheet only reflects 1/7 of the real value of a company)
2 reasons are:
- The DotCom era we're in has many intangible assets as value drivers of a company. Balance sheet does not capture the value of these intangible assets due to the inability to meet the definition and recognition criteria of assets.
Our current financial reporting standards focus too much on tangible assets (coz it's much easier and reliable) and have lagged behind in addressing and capturing the intangible assets in our balance sheets.
and suddenly it dawned upon me... that it's so true of a christian and one's faith too. drawing a parallel to a christian's faith at that point of time in class, we also focus on the tangibles assets we have (what we have), rather than the intangible assets we have in store. (what we have but we can't see that we have)
We fail to capture the intangible assets we have in store. Although that value is like, 6 times more than the tangibles. maybe because we make it to fail our own definition and recognition criteria. - Earnings management.
I was just very amused. The prof was teaching us ways to cheat and manage a company's earnings in a legal way, rather than illegally. which is, to my amusement once again, supported by the International Accounting Standards Board.
