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At a time when many barriers to global trade have fallen, countries all over the world are taking steps to harmonize their accounting standards and develop a truly global language of business. Under the lead of the International Accounting Standards Board (IASB), more than 100 countries have either implemented International Financial Reporting Standards (IFRS) or plan to do so. Yet while proponents of accounting harmonization say that IFRS will ultimately benefit firms and investors, Wharton accounting professor Luzi Hail says that there are reasons to be skeptical about these high hopes. He and three co-authors present their views in a new paper titled, "Mandatory IFRS Reporting Around the World: Early Evidence on the Economic Consequences."

What's wrong with the 500-year-old way in which all companies keep their books? Just about everything, says Baruch Lev, who has proposed a new method for determining the value of the intangible assets that are at the heart of the new economy.

When it comes to buffing results to please Wall Street, a wildly popular move now is to stuff discounts and shipping costs below the gross profits line, says accounting analyst Jack T. Ciesielski. They belong above it. The shuffling of expenses doesn't affect the bottom line--often negative in any event--but it does affect the ones closer to the top of the income statement, lines that Internet investors pay a lot of attention to. The same games are being played with shipping costs. Read more...

A common accounting language-which measures gross profits the same way in London and Paris as in New York-is fast becoming necessary. As part of the process, a debate has erupted between supporters of U.S. Generally Accepted Accounting Principles (U.S. GAAP) and the International Accounting Standards (IAS) that are widely used in Europe and other parts of the world. Which standard provides investors and regulators with a more accurate picture of corporate performance? What impact does that have on a company's ability to raise capital? Christian Leuz, a Wharton professor, ran an unusual horse race between companies using both U.S. GAAP and IAS standards in an attempt to find answers. The result may surprise you.

Article discusses the decline in overall numbers of accountants (and the defection of existing ones from Big 5 firms) due to too many regulations, increased educational requirements.

A look at the concept of activity-based costing, or ABC and its growing popularity in the manufacturing world.

The Financial Accounting Standards Board is proposing to change the way a company accounts for the premium - or payment in excess of fair market value - that it pays to acquire another company. The idea is to give analysts and others more information about merger activity, thereby allowing them to make better investment decisions. But as usual, there is more going on than meets the eye, and it may have as much to do with FASB sensitivities as it does with accounting practice.

Article discusses problems associated with accounting for and valuing intangible assets (see related articles by Baruch Lev). Offers some refresher info for those who have forgotten (or yet to take) their accounting course(s).

One of the foundations of American accounting is the Historical Basis approach, under which assets are presented on the balance sheet at their value at the time of acquisition. But in an era marked by the widespread use of complicated financial instruments and risk management strategies that may render yesterday's prices obsolete, some people are asking if historical cost should be replaced by a current-cost system. It could lead to more accurate financial reporting. Or it could lead to chaos.

Short article looks at Broadcom's aggressive (but legal) use of accounting - especially with regard to acquisition-related write-offs and exclusions.

Take a close look at some audit disasters, and you may agree with the SEC's outgoing chairman, Arthur Levitt: Accounting work and consulting work really shouldn't be under the same roof.

The assets that really count are the ones accountants can't count--yet. Here's one way to put a dollar value on corporate knowledge.

Article discusses the controversy of whether companies should estimate the present value of employee stock options, when granted, and then account for them as a current expense. Though the article is a little dated (referring to an old FASB proposal), the issues addressed continue to be relevant.

Increasingly, intangible knowledge assets are dwarfing the value of tangible book assets at many companies. But don't ask for details. While corporate reports heap praise on various efforts to capitalize on knowledge, they fail to supply reliable, objective benchmarks for measuring the values a company gets from its patents, brands, trademarks, capital expenditures, and research-and-development programs.

To assist financial managers in grappling with knowledge assets, CFO's second annual Knowledge Capital Scoreboard updates and expands last year's techniques--and its conclusions. In the 2000 edition, the methodology, designed at CFO's request by Prof. Baruch Lev of New York University's Stern School of Business, pierces the knowledge capital veil in more detail. Top companies in 20 industries were ranked according to their levels of knowledge capital, from a high of $211 billion at mighty Microsoft Corp., down to $332 million at our smallest knowledge-rated company, Adolph Coors Co. At our median company, $21 billion of knowledge capital amounted to three times book value.

Over the last few years, it's become clear that many technology investors don't know how to value companies that have negative net income. For example, what's the best way to look at an emerging telecom company that's building out its network and accruing lots of debt? Net income, when calculated according to U.S. Generally Accepted Accounting Principles, can be distorted and tell an investor little about the operations. As substitute, EBITDA is a metric that's often presented as a surrogate for cash flow from operations.

Collaboration among manufacturers, suppliers and customers is helping companies drive excess costs out of the supply chain. Mutual trust and accurate cost accounting are the critical links.

"It's two Morgan Stanley analysts vs. the telecom in an unusual feud over accounting"

Though focused on a specific company and time-frame, this article nevertheless offers some useful insight into the delicate relationships between Wall Street, analysts, investors and companies. And it offers glimpses of some interesting accounting "tricks."

Certified public accountants, in many people's eyes, serve as cops on the Wall Street beat, assuring the accuracy of the financial results reported by U.S. companies. But key components of the audit process - the independence and objectivity of auditors - may be eroding because of the huge fees paid by audit clients for non-audit services.

High book-to-market (B-to-M) firms tend to be in poor financial health, as reflected by their low stock prices and poor earnings performance. Yet research consistently shows that a portfolio of these "value" firms outperforms both the overall market and portfolios comprised of low B-to-M "glamour" firms.

The reason for this is because a small number of high B-to-M firms are strong enough to raise the portfolio's mean performance, compensating for the many high B-to-M firms that under-perform the market. Wouldn't it be great to have a way to distinguish prospective winners from likely losers? A University of Chicago Graduate School of Business professor thought so, too.

Pressure to meet the numbers is greater than ever. But don't let your company issue a misleading earnings report. An excerpt from the Harvard Business Review shows how to spot signs of trouble.

The dramatic disintegration of Enron has left a lot of people wondering how this huge, publicly-traded company could have fallen so far so fast. Wharton faculty and others help explain what went on behind the scenes at Enron, where it is now clear that management exploited loopholes in accounting procedures and created questionable partnerships involving top company officials, among other tactics.

The Securities and Exchange Commission is concerned with the growing practice of issuing "pro forma" earnings reports that tend to paint a rosy picture of company results.

Pro forma, which means "as if", has in recent years evolved into "a sophisticated term for lying about your results," says Wharton accounting professor emeritus Peter H. Knutson. He compares companies that abuse pro forma statements to the husband who stumbles home in the middle of the night and tells his wife, "Don't look at the lipstick on my collar. That doesn't count. The fact that I'm home is what counts."

New merger-accouting rules may sharpen investor views of intangibles, but CFOs should also consider the impact of write-offs.

A recent study of US IPOs from 1986 through early 2000, conducted by Cap Gemini Ernst & Young, found that "new economy" firms that promoted the use of non-financial measures did worse when evaluated by those same measures. This compounds their well-documented failure to provide meaningful financial returns and confirms the importance of identifying, measuring, and disclosing appropriate intangible value drivers.

Furthermore, the study found that the factors driving IPO success have stayed relatively constant over time and are strongly connected to intangibles such as good management practices, rather than based only upon the promise of new technology. In addition, the results of the CGEY study run counter to many other popular perceptions about the size and age of companies that conduct IPOs.

"Intellectual capital has been around for as long as companies have had customers. It's what makes a company worth more than the sum of its countable parts. As an asset, it has been (inadequately) covered for years by the blanket of goodwill. Unlike accounting goodwill, intellectual capital appreciates.

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Traditional accounting measures can no longer adequately determine the real value of companies. But if intangible assets cannot be measured, how can they be managed? Corporations and accounting firms alike are taking this problem seriously and have been working to develop systems to identify, value and manage intellectual capital."

U.S. and international standard setters are coordinating their efforts to craft a common language for business.

When Enron collapsed last year amidst allegations of misleading financial statements, it joined a long list of companies that had originally been given clean bills of health by auditors and analysts, only to have that information later discredited. Yet according to analyst and author Howard Schilit, businesses were, in fact, broadcasting their misdeeds long before corporate watchdogs caught on. The problem is that nobody was looking in the right places.

MCI introduced Walter Pavlo to a world of armed thugs, duffel bags stuffed with cash and phony accounting. Now, sitting in a South Carolina prison, he points a finger back at his former employer.

If banks have to come clean about their off-balance-sheet leverage, get ready to pay more for money.

Accountancy used to be boring. If only it still were.