Subjects of Substance

BY SAMUEL H. COPPOCK


Your issue of May 2008 may well stand among the best journalism in our profession, with not only the codification of GAAP (“Framing the Future,” page 40) but a thorough discussion of the late crisis in the subprime mortgage market and the role of accounting there (“The Role of Fair Value Accounting in the Subprime Mortgage Meltdown,” page 34).

Michael R. Young is right on point that the conservative standards of reporting have brought the valuation issue to immediate attention. That is what reconciles both Paul B.W. Miller’s (conservative) fair value accounting of the balance sheet to Eugene H. Flegm’s historical (and inclusive) income statement. The difference, “unrecognized losses” after income from operations, maintains the integrity of both the income statement and the balance sheet. Some competence on the part of the user is necessary to understand this; it simply cannot be “dumbed down” any further.

But, the real issue is brought out quite clearly by Kenneth F. Fick (“Securitized Profits,” page 54) in his final paragraph: FASB will likely “address the removal” of “special-purpose entities.” Enron immediately comes to mind. “Special-purpose entities” are forms to move substance off the balance sheet. SPEs are subsidiaries or related parties which must be included and reported on the balance sheet in the classical manner. When do we learn?

Thank you again for a superb issue, and I look forward to more of the same.

Samuel H. Coppock, CPA
Chandler, Ariz.

 

 

SPONSORED REPORT

Revenue recognition: A complex effort

Implementing the new standard requires careful judgment. Learn how to make significant accounting judgments and document them and collaborate with peers for consistent application.

VIDEO

How to Excel pivot a general ledger

The general ledger is a vast historical data archive of your company's financial activities, including revenue, expenses, adjustments, and account balances. J. Carlton Collins, CPA, shows how to prepare data for, and mine data with, PivotTables.

QUIZ

News quiz: Taking an economic snapshot and looking to the future

Recent news included IRS actions that affect individuals and partnerships and a possibly influential move by a Big Four accounting firm.Take this short quiz to see how much you know about the news.