Why Historical Cost Accounting Is Broken (And What Could Fix It)
Download MP3What if the foundation of financial accounting is fundamentally flawed? Tom Selling, author of The Accounting Onion blog, argues that historical cost accounting creates a "truth in labeling problem" that allows management to manipulate earnings while failing to capture economic reality. Through compelling examples from oil and gas, pharmaceuticals, and subscription businesses, he explains why value creation often occurs years before GAAP recognizes a single dollar of revenue. You'll discover how a $2 change in expected cash flows can trigger a $400,000 impairment loss, why the FASB shifted focus from earnings to balance sheets, and how current corporate governance essentially lets management "grade their own papers." This conversation challenges core assumptions about what accounting should measure and offers a provocative vision for reform.
Chapters
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Chapters
- (01:21) - The Myth of Honest Financial Accounting
- (02:28) - Management Gaming the System
- (03:22) - Historical Cost Accounting Explained
- (05:44) - Examples of Manipulation and the Enron Scandal
- (09:16) - Impairment and Depreciation Issues
- (13:26) - Alternatives to Historical Cost Accounting
- (20:59) - The Disconnect in Value Recognition
- (25:08) - R&D Expenses and Unrecognized Assets
- (25:39) - Challenges in Valuation and Accounting
- (27:08) - Measuring Assets and Liabilities
- (28:09) - Industry-Specific Accounting Limitations
- (31:08) - The Role of Transparency in Accounting
- (34:12) - Subscription Businesses and Revenue Recognition
- (44:22) - The Problem with Estimates and Auditing
- (48:18) - Conclusion and Summary
https://earmarkcpe.com
https://earmark.app/
Download the Earmark CPE App
Apple: https://apps.apple.com/us/app/earmark-cpe/id1562599728
Connect with Our Guest, Tom Selling
The Accounting Onion: http://accountingonion.com
Connect with Blake Oliver, CPA
LinkedIn: https://www.linkedin.com/in/blaketoliver
Twitter: https://twitter.com/blaketoliver/
Creators and Guests
Guest
Tom Selling
Emeritus Professor, Thunderbird School of Global Management. Formerly served on the faculties of Dartmouth College, MIT and Wake Forest University. Part-time faculty at Southern Methodist University and Colorado State University. Leader and producer of approximately 200 management and professional education programs in 14 countries. Consultant to public companies on administrative and financial matters including SEC compliance, U.S. GAAP, International Financial Reporting Standards, financial and strategic decision making, and control of international operations. Expert witness and advisor to parties in litigation or arbitration on a broad range of financial and accounting-related issues. Former member, Standing Advisory Group of the Public Company Accounting Oversight Board (PCAOB). Former academic fellow, Office of the Chief Accountant, U.S. Securities and Exchange Commission. Former Certified Public Accountant, 1979 – 2022. Author of numerous reference materials, business cases, research articles in academic and professional journals, and a textbook on international financial reporting and financial statement analysis. Author of The Accounting Onion (www.accountingonion.com), one of the most widely-read weblogs analyzing developments in financial reporting as they affect public companies. Former author of SEC Compliance: Financial Reporting and Forms (Thomson Reuters), an online subscription-based reference resource updated monthly.
