Mind the GAAP

Harvard Business

It’s becoming increasingly difficult to determine whether a firm made a loss or a profit. Finance & Accounting Accounting Financial analysis Digital Article


Profit First: Reverse Engineer Your Way To Financial Success

Terry Starbucker

What’s wrong with the traditional “GAAP” accounting formula. “Profit is not an event, it’s a habit. Profit happens through small wins, strung together.” – Mike Michalowicz. My guest on the latest edition of the More Human Podcast is Mike Michalowicz. By his 35th birthday Mike had founded and sold two multi-million dollar companies. Confident that he had the formula to success, he became an angel investor… and proceeded to lose his entire fortune.


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How Can I Choose Management Software That’s Right for My Church?

Strategy Driven

They produce the GAAP principles which state how non-profits should have a fund accounting system in place. Thinking about what software is best for your church but aren’t sure what to consider?

Giving Executives 40% of Revenue is Insane

Curious Cat

When you read about non-GAAP earnings, often one of the big costs they are excluding is the massive stock giveaways to executives. I have previous written on my belief that excessive executive compensation had reached the level of a deadly disease of western management (building on the W. Edwards Deming’s list of 7 deadly diseases ). I named excessive executive pay and a broken “intellectual property” system as new deadly diseases in 2007.


When Tracking Projects, Ignore Your Accountants

Harvard Business Review

They're just following what's known as Generally Accepted Accounting Principles, or GAAP. But GAAP is exactly where the trouble lies. According to GAAP we are now 50% complete, because we have spent 50% of our budget. The GAAP financial report will recognize half the revenue on the project, or $2.5 That's why we don't use GAAP to run our projects. We do, of course, compile our company's financial statements according to GAAP to keep bankers and investors happy.


Why We Need to Update Financial Reporting for the Digital Era

Harvard Business

In the meanwhile, companies increasingly resort to provision of proforma and non-GAAP reports, even though this practice is looked down upon by the SEC and is opportunistically misused by a few companies. Analysts increasingly rely on non-GAAP metrics. This is an outcome of the growing divergence between what companies consider as value-creating metrics and those reported as profits in the GAAP. Martin Konopka/EyeEm/Getty Images.


A Blueprint for Digital Companies’ Financial Reporting

Harvard Business

Currently, firms’ first report net profits and then back out many of these one-time items to present a non-GAAP (Generally Accepted Accounting Principles) profit number. Because investors consider these non-GAAP numbers to be value-relevant, we propose a more direct way for them to be calculated. Dorling Kindersley/Getty Images.


5 Reasons CFOs Struggle with Financial Reporting (and How to Overcome the Challenges)

The Kini Group

Recent updates to laws concerning finance include updates to the Financial Accounting Standards Board (FASB) US GAAP financial reporting standards and tight 10-Q and 10-K deadlines. No one likes financial reporting. There, I said it. Analysis, now sometimes that’s fun. But reporting? Always a chore. It takes mind-numbing amounts of focus and ends up just being a massive effort of copying and pasting numbers into the right columns and rows.

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5 Reasons CFOs Struggle with Financial Reporting and Analysis (and How to Overcome the Challenges)

The Kini Group

Recent updates to laws concerning finance include updates to the Financial Accounting Standards Board (FASB) US GAAP financial reporting standards and tight 10-Q and 10-K deadlines. No one likes financial reporting and analysis. There, I said it. Analysis, now sometimes that’s fun. But reporting? Always a chore. It takes mind-numbing amounts of focus and ends up just being a massive effort of copying and pasting numbers into the right columns and rows.

TCO 32

Why Leaders Are Still So Hesitant to Invest in New Business Models

Harvard Business

Finally, Generally Accepted Accounting Principles (GAAP) used to manage businesses and report to investors often ignore intangible assets or miscategorize them as expenses. Despite the fact that executives could improve the value and performance of their companies by shifting capital from under-performing business units to better performing units, most choose to allocate their resources the same way year after year.

The Dangers of Digital Protectionism

Harvard Business

follows Generally Accepted Accounting Principles (GAAP), developed through a rules-based approach. Philippe Intraligi/Getty Images. Many governments are currently rethinking their policies regarding cross-border data flows. Although cross-border data flows grew 45x between 2005 and 2014, according to a McKinsey analysis , events since 2014 have pushed the pendulum to swing away from unconstrained data globalization.


GDP Is a Wildly Flawed Measure for the Digital Age

Harvard Business

As the market, including customers, employees, and investors, shifts the mix of what is done and what is consumed, this most important and commonly used economic indicator, along with Generally Accepted Accounting Principles (GAAP), tells a concerning story. HBR STAFF. Germany, Switzerland, and Japan are now in negative interest rate territory. So are Denmark and Sweden. And U.S. treasuries have hit all-time lows.

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How B2B Software Vendors Can Help Their Customers Benchmark

Harvard Business

The appeal of widespread nonfinancial performance measures for assessing companies has been discussed for several decades, but never achieved—despite continuing growth in assets and priorities poorly measured by GAAP accounting. Gillian Blease/Getty Images. Knowing which organizations perform the best on any particular dimension used to require subjective surveys or painstaking research.

Teaching an Algorithm to Understand Right and Wrong

Harvard Business

need to abide by GAAP accounting standards, which rely on strict rules, while those operating in Europe follow IFRS accounting standards, which are driven by broad principles. In his Nicomachean Ethics , Aristotle states that it is a fact that “all knowledge and every pursuit aims at some good,” but then continues, “What then do we mean by the good?” ” That, in essence, encapsulates the ethical dilemma.


Reclaiming the Idea of Shareholder Value

Harvard Business

For instance, he states that “When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.” Corporate governance issues are constantly in the headlines. Activist investors challenge management strategies. Investors and others ask why companies binge on buybacks while skimping on value-creating investment opportunities.


On Creative Accounting: Two Creativity Myths

Harvard Business Review

As long as the new ideas cohere with ethical standards, and generally accepted accounting principles ( GAAP ), they can yield immense benefits. Not only does this accounting innovation fit well with GAAP but, for hundreds of business, governmental, and non-profit organizations that use it worldwide, it powerfully serves their goal of linking every aspect of their activities to overall strategy. Tags: Creativity Ethics Innovation GAAP "Creative accounting" is really bad.


Keep Your Sarbanes-Oxley Off My CFO

Harvard Business Review

If a CFO is operating outside the bounds of policy or law or GAAP and is willing to lie to the board about it, I doubt that he or she would be overly concerned about whether the line being crossed is dotted or solid. Self-proclaimed shareholder advocates have extended Sarbanes-Oxley reforms deeper and deeper into the business. Now some are going too far, pushing those regulations into areas that intrude on effective corporate administration.

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You Can't Impress Stock Analysts.and Shouldn't Try

Harvard Business Review

In essence, they'll report their results to GAAP standards and as the SEC, FASB, and other quasi-regulatory bodies require.but they won't answer to analysts. ExxonMobil reported last week that its net income reached $10.3 billion.in just the third quarter. The oil giant is arguably the most profitable corporation in history. Ten billion in three months is historic, but as the New York Times reported, " analysts were not impressed.".


Calculating the Market Value of Leadership

Harvard Business Review

GAAP and FASB standards require financial reporting of earnings, cash flow, and profitability – all measures that investors have traditionally examined. In recent years, investors have learned that defining the market value of a firm cannot just be based on finances. But recently, these financial outcomes have been found to predict only about 50% of a firm’s market value.

Midsized Firms Can Survive a Cash Crisis

Harvard Business Review

Cash revenues were indeed $200 million for the year, but the correct GAAP net revenues were only $30 million and profit was $2 million. Operational meltdowns can devour a midsized company’s cash. Without adequate outside capital, a financial hemorrhage can escalate to a liquidity crash, an ugly moment when no one gets paid. At such a time, company leaders must relentlessly focus on one thing: unearthing cash and holding onto it. Not growth, or even profits.

The U.S. Corporate Tax Code Is Broken. How Should We Fix It?

Harvard Business Review

On Tuesday, Apple CEO Tim Cook testified in front of the Congressional Permanent Subcommittee on Investigations as a part of their look into the company''s corporate tax practices — according to Sen. Carl Levin, the chairman of the committee , "Apple successfully sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere." I asked Mihir A.