Accounting

In my review of AltaGas Ltd I talked about the various methods they were using to show their Dividend Payout Ratios. The EPS calculation is a rather fake number. It is a method for all companies to use independent of what industry they are in. The main purpose is so people can compare EPS across different companies. It does sort of work.

Also I said that accounting is just as much art as science and it is. There is a lot of value judgement that goes into determining how to account for various items. We are bringing in more and more rules for company accounting, but they will probably never get rid of the need for accounting people to make value judgement. Sometimes more rules just make things more complicated rather than adding value.

If you take the subject of revenue, it can something not be clear. Say that you get paid for a 3 year subscriptions to an investment letter. Do you book revenue when received or as you send out the investment letter? Say you are getting paid after a job is done. Do you book the revenue when you got the job done, but not yet received payment? What if there is a chance you will not get paid? Lots of this stuff now has rules.

However, crowd sourcing for a project must be a whole different ball game. Each crowd sourced funding has different rules on what you may or may not get for the privilege of you handling over some money.

The IRFS standards we generally use are just the latest example of people trying to standard rules for accounting. There is a Wikipedia item on IRFS standards. Before that we had Canadian Generally Accepted Account principles (GAAP) Rules. AltaGas Ltd uses US GAAP Rules. There is a Investopedia article explaining what GAAP is and compares it to IRFS).

On the Sokanu site they ask the question “Is accounting an art or a science”. Their answer is “Accounting can be considered an art because it requires creative judgment and skills. In order to perform accounting functions well, discipline and training is required. Accounting can also be considered a science because it is a body of knowledge, but since the rules and principles are constantly changing and improving, it is not considered an exact science.”

The EduNote site discusses how account is both art and science. Scacpa on Word Press also talks about this subject and gives examples.

On my other blog I wrote yesterday about Melcor Developments Inc. (TSX-MRD, OTC-MODVF)... learn more. Next, I will write about BCE Inc. (TSX-BCE, NYSE-BCE)... learn more on Monday, March 26, 2018 around 5 pm.

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