Doing God's Work?

Problems and Perspectives in Management Journal, Vol.12, Issue 1, 2014, pp.108-110

3 Pages Posted: 10 Jul 2008 Last revised: 20 Feb 2018

See all articles by Ehsan H. Feroz

Ehsan H. Feroz

University of Washington Tacoma, Milgard School of Business-Accounting ; University of Illinois at Urbana-Champaign; Government of the United States of America - US GAO Advisory Council; University of Minnesota Duluth, Labovitz School of Business-Department of Accounting; University of Minnesota, Carlson School of Management-Department of Accounting; American Accounting Association

Date Written: July 9, 2008

Abstract

Recent revelations by several high profile instances of fraudulent financial reporting provided the motivation for this paper. This case highlights the weaknesses of the accrual-deferral basis of accounting which provides the theoretical foundations for both the U.S. Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). While accounting theory is often addressed in an accounting doctoral seminar limited to some high priests only, the implications of accrual-deferral accounting are much more profound and beguiling. It projects an aura of objectivity and scientific precision in measurement that are sorely missing in modern accounting practice. Fortunately or perhaps not so fortunately, most people (99%) do not understand the degrees of managerial discretion allowed by both the GAAP and the IFRS in preparing financial statements. While the proponents of the the very strong form of efficient market hypothesis (EMH) contend that an efficient market can see through and peep through any potential foul play managers, naive investors are well advised to look at these financial statements with an appropriate dose of skepticism. Financial statements are not prepared for the man on the Clapham omnibus to take a pleasure reading ride. It is an artful handicraft of the accountants, by the accountants, and for the accountants to interpret only! Naive investors might be up for surprises if they are in a self-help mode.

Keywords: Fraud, Accrual Accounting, Cash basis Accounting, GAAP, GAAS, IFRS, FASB and IASB, Naive investors, Wall Street, Political Economy

JEL Classification: M40, M41

Suggested Citation

Feroz, Ehsan H., Doing God's Work? (July 9, 2008). Problems and Perspectives in Management Journal, Vol.12, Issue 1, 2014, pp.108-110 , Available at SSRN: https://ssrn.com/abstract=1157527 or http://dx.doi.org/10.2139/ssrn.1157527

Ehsan H. Feroz (Contact Author)

University of Washington Tacoma, Milgard School of Business-Accounting ( email )

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Tacoma, WA 98402-3100
United States
(253) 692 4728 (Phone)
253 692 4523 (Fax)

HOME PAGE: http://www.tacoma.washington.edu/business

University of Illinois at Urbana-Champaign ( email )

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Government of the United States of America - US GAO Advisory Council ( email )

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Washington, DC 20548-0001
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University of Minnesota Duluth, Labovitz School of Business-Department of Accounting ( email )

10 University Drive
Labovitz School of Business
Duluth, MN 55812
United States
218-726-6988 (Phone)
218-726-8510 (Fax)

University of Minnesota, Carlson School of Management-Department of Accounting ( email )

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Minneapolis, MN 55455
United States

American Accounting Association ( email )

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