Ehsan H. Feroz
University of Washington - Tacoma-Milgard School of Business; Vernon Zimmerman Center, University of Illinois; US Government Accountability Office
October 23, 2008
Critical Perspectives on Accounting, Vol. 7, p. 699, 1996
This poem highlights the simplicity as well as misleading aspects of the double-entry bookkeeping and the Generally Accepted Accounting Principles (GAAP), especially for those who might naively believe that accountants "always tell the truth and nothing but the truth". The degrees of discretion provided by the GAAP is sufficiently large so that even a 'camel' can be described as a 'horse' with appropriate disclaimers.
Ever since Paciolli passed down the double-entry bookkeeping framework, the profession has never seriously addressed the issue, as to whether this simplistic and somewhat misleading framework is the best way to record some rather very complicated and sophisticated transactions such as, accounting for derivatives involving some rather speculative transactions. Occasional calls for revisiting the double entry bookkeeping by Abraham Briloff and Yuji Ijiri among others were greeted with a cold response.
After all, there is no incentive to change a recording device that allows so much hidden discretion for managers! It also helps us keep the naive investors thoroughly confused about the intricacies of elaborate accruals. This poem hopes to stimulate some serious discussions about the utility of the double-entry book keeping framework in today's environment of sophisticated financial engineering and fair value accounting.
Keywords: Double Entry Bookkeeping, GAAP, SEC
JEL Classification: M41Accepted Paper Series
Date posted: October 28, 2008 ; Last revised: July 7, 2009
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