Beyond Gaap

6 Pages Posted: 2 Mar 2004

See all articles by Peter J. Wallison

Peter J. Wallison

American Enterprise Institute (AEI)

Robert E. Litan

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C.

Abstract

Most of the value of contemporary corporations does not appear on their balance sheets. If all assets were like a machine that turns out widgets, under GAAP the depreciation of the machine - which the manufacturer would have purchased from a third party - would be written off against the revenue from the widgets, producing GAAP earnings. But in the case of a software program for example, there is nothing on the balance sheet to be depreciated. Because there is no asset, there is no depreciation. When the costs of revenue-producing assets cannot be determined because the earning asset is internally produced by the company's employees and has no determinable cost, GAAP reports are useless or misleading.

Keywords: Enron, GAAP, Generally Accepted Accounting Principles, depreciation, asset, stock valuation, price/earnings ratio, cash flow projections, SEC, Securities and Exchange Commission, accounting practices, failure, success, financial indicators, performance indicators, intangibles

JEL Classification: G12, M21, M41

Suggested Citation

Wallison, Peter J. and Litan, Robert E., Beyond Gaap. Available at SSRN: https://ssrn.com/abstract=511422

Peter J. Wallison (Contact Author)

American Enterprise Institute (AEI) ( email )

1789 Massachusetts Ave, NW
Washington, DC 20036
United States
202-862-5864 (Phone)
202-862-4875 (Fax)

HOME PAGE: http://www.aei.org/scholars/wallison.htm

Robert E. Litan

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C. ( email )

1777 F Street, NW
Washington, DC 20006
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
265
Abstract Views
1,805
rank
160,374
PlumX Metrics