[April 1, 2011 special edition] In a surprise move, SEC Chair Mary Schapirouette announced that she has directed Leslie Sidewoman (Financial Accounting Standards Board) and Sir David Tweetybird (International Accounting Standards Board) to start work on converging to Cash Basis Accounting.
Schapirouette told The Summa, “Last night I was watching a fascinating History Channel special on accrual accounting. Cruel accounting has been a fail because it’s a lot easier to manipulate financial statements by making up fake adjusting journal entries than to have real cash transactions.” She added, “Hey. It almost worked for Lehman Brothers and we think it will almost work for us.”
Personally, I like the move. I’ve started designing a new course titled REPO 101.
Leslie Sidewoman said, “The new rules will be called Greenbacks, because going green is so trendy these days.”
Sir David Tweetybird wondered if the move would get bogged down in controversy, “This could be another attempt by the Americans to take over international accounting. The SEC proposal is conditioned on U.S. Dollar Cash Basis Accounting. We think there should be a place for European cash equivalents.”
Debit and credit – – David Albrecht
Already Sitty and other banks have expanded the definition of cash to include inventory, property, equipment, goodwill, and all other assets, real and intangible. The FASB promises to issue at least 2 million pages of standards to limit the definition of cash. The IASB says who cares what the definition is; let managers manipulate the balance sheet any way they wish.
Thanks for adding this, Ed. I had missed it. From one grumpy to another.
Well said. Only wish it were true. We had similar ideas – I posted equally shocking news on my blog.
I found this via Jim Ulvog’s blog, along with several other notable news releases that appeared today.
The only potential issue that I see is one that goes well beyond the Europeans’ concerns – exactly what is “cash”? There are those that will argue that basing an accounting system on movements of a government-based currency (and a government-manipulated currency) is just as risky as basing it on debits and credits.
Therefore, I suggest that we should instead move to GOLD-based accounting…
[…] The Summa, Professor Albrecht scoops the financial market in his report SEC to Promote Cash Basis Accounting. See his news article for full report, but suffice it to say the convergence to cash basis is […]
A welcome development. This would mitigate the tension between a rules-based methodology and principals based methodology. It might reduce the need for such extensive implementation guidance from the FASB.
Please keep us posted on developments.
P.S. Congrats on getting the worldwide scoop!