Aggressive Accounting

  

"Fishy accounting" or "awful close to a con job" or "Hollywood accounting" seemed like rude ways to refer to accounting practices that purposely gussy up a company's books. So the good people of the financial community came up with the euphemism "aggressive accounting."

Sometimes these steps can be illegal, or very close to illegal. In these situations, you can call it "aggressive accounting" the way you could call World War II "aggressive diplomacy." Other times, the accounting practices don't cross a moral line, but just put a company's finances in the best possible light.

The truth is that accounting seems pretty straightforward, but there is a lot of grey area. Expenses and revenues can be categorized in a lot of different ways, or the timelines of payments and revenues can be massaged to take advantage of loopholes. Like how a good lawyer can make things legal (or at least seem legal) that a bad lawyer couldn't, a good accountant can get aggressive with the books and save (or even make) a company money.

There are a couple of main reasons for aggressive accounting. A company might look to lower its tax bill, so its accountants structure things to take advantage of the fine print of the tax code. Or a company might try to make its revenue and profits look as big as possible, in order to impress shareholders or entice an acquisition offer.

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Finance: What is GAAP?21 Views

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Finance allah shmoop what is a gap Yeah not this

00:09

Nor this Nor this gap is an accounting term that

00:13

stands for generally accepted accounting principles And it is basically

00:18

the accounting code of hammurabi or the ten commandments that

00:22

is There are lots and lots and lots of ways

00:24

that clever bean counters could define and or account for

00:28

the notion of profits lots of ways to recognize revenues

00:32

versus sales and lots of ways to think about how

00:34

much that ten commandment frisbee factory is appreciating in value

00:39

each year Well the world according to gaff outlines the

00:42

structure under which accountants must you know count beans the

00:45

basic idea Well sort of in the vein of the

00:47

golden rule that is do unto others as you'd have

00:50

them do unto you Gap requires that accountants always present

00:54

their numbers in the most reasonably conservative manner possible such

00:58

that they never overstate how profitable or how well the

01:02

company is doing Gap is the framework the map the

01:05

religion and the destinations we want to go inside this

01:09

neck of the accounting woods are three income statement cash

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flow statement balance sheet will none of these three key

01:15

elements mean anything however unless they all follow the same

01:20

rules they're linked like gears in an overpriced swiss watch

01:25

and the eighteen zillion individual rules on their own mean

01:28

nothing like what is revenue Is it a dollar you

01:31

collect in cash at a video game arcade booth Is

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it the promise to pay that dollar in a year

01:37

Well there are lots of ways to account for this

01:39

notion of revenue so don't think of gaff isa siri's

01:42

of rules rather think of it as this you know

01:45

key mathey kind of finance e a county religion it's

01:49

all about quote doing right unquote and part of that

01:52

issue is a natural conservatism that has to come with

01:56

it kind of amish you'd think would be a good

01:59

gap Accountants Well if you're thinking about how to account

02:02

for five dollars promised to you in a year well

02:04

you have to recognize that there is risk you won't

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collect it and that money a year from now is

02:09

worth less than its face value and well that you

02:12

should categorise those revenues way off in the distance differently

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from how you'd categorize collecting the five dollar bill in

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cash that day and putting it in your cigar box

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there right So gap is basically the force in accounting 00:02:26.44 --> [endTime] May it be with you

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