What Investors Can Learn From Accounting Standards

Here's a way to get a little more insight when looking at a company's financials.

One size of analysis does not fit all - and contracts, depreciation, costs, inventory and other financials may be handled very differently owing to the reality of the industry.

Retail, housing, airplane manufacturing, cosmetics and more all experience these metrics differently.

1. Go to Checkpoint.

2. Make sure the drop down box is tuned to accounting, audit and corporation finance.

3. Set Tab to Search

4. Look to the right - you'll see AICPA Audit and Accounting Guides



It's a great way to see what analysts are seeing when they upgrade or downgrade a company!

Searching For SEC Documents

Here are your two best options.

You can search the official EDGAR database.

You can use our database Mergent and select government filings as the search option.  I prefer the search interface on Mergent.

Grumpy Old Accountants Blog

Looks like one of my favorite blogs has a new location here.

Grumpy Accountants blog is a great place to see generational differences in accounting concepts. Today's creative and aggressive accounting (increasingly non GAAP too!) looks like fraud, legerdemain and chicanery to an older generation. And I imagine the young generation finds the grumpy accountants out of touch and backwards.

So what is an asset, proper forward guidance, true accounting of sales, the value of an asset and more?  Makes for some interesting reading.

Looting: The Economic Underworld of Bankruptcy for Fun and Profit

"Looting: The Economic Underworld of Bankruptcy for Fun and Profit" is a classic article that critiques traditional behavioral models of economics. 

If you're a bank or savings-and-loan, get your deposits insured, gamble the deposits in an unsustainable boom and bust cycle, take the profits, declare bankruptcy, wipe out the deposits, and make the Federal government pay for the lost deposits.

Inspired by the late eighties savings-and-loan debacle and real estate boom and bust cycle in Texas, and perhaps a sign of things to come.

Who Audits A Company?

Here's how you find out who audits a company.

If you use Mergent: look up your company, then choose company details and scroll down and look to off-center right.

You can also do this in S&P's Netvantage. Once you look up your company, look under the Corporation Record area.

We also have a very advanced program Audit Analytics - this program features 1,500 accounting firms & 20,000 publicly registered companies. Shows who is auditing whom & how much they are paying for what services. Allows creation of reports by auditor, fees, location, & industry. Available only in the Alkek Library.

What's Inside America's Banks?

Great article from The Atlantic summarizing the sad situation that US banks are able to conceal the true state of their financial health through legal loopholes. 

Article starts with a broad summary then gets good and wonky (we like that!)

Good quote: “Investors can’t truly understand the nature and quality of the assets and liabilities. They can’t readily assess the reliability of the capital to offset real losses. They can’t assess the underlying sources of the firms’ profits. The disclosure obfuscates more than it informs, and the government is not just permitting it but seems to be encouraging it.”

Check it out. 

International Financial Statistics Has New Interface

International Financial Statistics has a new, user-friendly interface.

This is where you go to find data on interest rates, financial reserves, money, deposits, GDP, prices, employment, production numbers and trade (and more).

Data is available for most countries of the world.

BTW, I like the different kinds of interest rates available: money market, discount, lending, desposit, and short or long government bonds (for most countries).

IMO, the best search method:

Go to Query Builder
Select Concept (tip: Interest Rates Hidden Under Financial Indicators)
Change the Time Period to Include Multiple Years (if needed)
Select Countries

FYI, sometimes historical data for certain concepts and countries is not available.

Book Review: A History of Interest Rates

Here's why this is an interesting book.

Most Americans' frame of economic history reference is less than 100 years old. There's a lot of still valid historical economic points about credit, interest, money expansion, default and bonds from the last three thousand years or so.

It's not irrelevant!

This book covers lending and credit from Sumer through the Roman Empire, Middle Ages, and modern history. It can be hard to find these kinds of overviews!

In fact, as sovereign debt becomes the story du jour, read up to see how past cultures responded to default, high interest rates and policy responses of governments.

Book Review: The Best Way To Rob A Bank Is To Own One

Today's book is William Black's The Best Way to Rob a Bank is To Own One: How Corporate Executives and Politicians Looted the S & L Industry.

The savings and loan crisis of the late 1980s and 1990s has now passed into history but seems a precursor to today's crisis of financialization. Investigator William Black is a favorite of many observers for his tough, common sense insights and refusal to kowtow to conventional wisdom and platitudes.

The savings and loan crisis features many of the familiar culprits behind today's bank problems: banks being allowed to invest capital in risky areas, low requirements for reserves, overextension, and understaffed government regulatory agencies (among other). This crisis particularly affected the Southwest and you need to read this if you plan to be a businessperson here (it's part of our history).

William Black's book is an interesting read for banking junkies and accounting students and includes copious nitty gritty details.

This could be your introduction to the concept of control fraud: where the company executives knowingly misstate numbers and mislead investors (see Enron).

I prefer to think of control fraud as creating conceptual frameworks that make the reckless seem viable and logical. Spotting control fraud is very hard because of the accompanying social acceptance and official approval. It pays to think for yourself.

Breakdown of Income Taxes By Income

This one is for the people interested in who pays INCOME taxes and how much and what their contribution is to the national tax receipts.

The IRS breaks down income tax stats by income group. If you follow this link, you'll have to negotiate a rather busy page of links to various tables.

But it's worth it to see how the economy is doing (less wages=less taxes) or if you want to wade into the waters of tax politics. Just remember, this represents INCOME taxes - not payroll taxes, sales taxes, property taxes or which socio-economic groups serve in the military ;)

Forbes's 100 Most Trustworthy Companies

Here's an interesting list: Forbes's annual ranking of the 100 Most Trustworthy Companies.

To make this list, the company had to meet standards of accounting openness and adherence to conservative (i.e. reality-based) accounting standards.

In an ethically and reality-challenged world where companies' financial statements are often, er, enhanced....it's good to know.

Yup, Bed Bath and Beyond topped the list of large cap companies.

Review of David Einhorn's Fooling Some of the People All of The Time

This is the start of a new feature for me. I'll pick a business related book and post a short review.

David Einhorn: Fooling Some of the People All Of The Time (2008)

David Einhorn is a very well-regarded hedge fund manager. After finding irregularities in a company called Allied Capital's financial statements, Einhorn went short the stock. Einhorn discussed his position that Allied Capital was in trouble at public forums. Then the nightmare began. Allied Capital waged a personal war against Einhorn that involves issues of Einhorn's free speech and the perception of short selling as wrong and injurious to capitalism (it's nothing of the kind IMO).

The Securities and Exchange Commission (SEC) eventually caught up to Allied Capital (which has still not admitted to wrongdoing). This book is about the right to be unpopular and the integrity of the financial system.

Einhorn gives many colorful examples of his thought process in identifying accounting sleights of hand. The examples range over several different companies and decades. It's an eye opener for most of us.