Tuesday, March 10, 2009

Review of Accounting Gets Radical...

Reading, "Accounting Gets Radical The green-eyeshade gang isn't measuring what really matters to investors. Some far-out thinkers plan to change that." by Thomas A. Stewart from April 16, 2001 (Fortune) in hindsight lack of clarity and "off the books" accounting methods have dealt a serious blow to global liquidity at this time. Knowledge-based or intellectual assets valuations have only become a recent occurance in the last decade or so.

I am uncertain if one can rely upon Greenspan's opinions on the topic as at one time he recommended several dubious banking institutions during the junk bond era according to Edward Chancellor in "Devil Take the Hindmost : A History of Financial Speculation." Even Arthur Anderson is still seen as a reputable resource with no reference to impending Enron inspired doom.

This text makes a brief description of accounting principles which need be evaluated for a modern day rehabilitation of the act and art of accounting described as the interplay between working capital, fixed assets, and investments. Our current markets have obliterated these principles of accounting to establish tangible value.

1. Working capital: Due to ongoing uncertainty working capital appears globally low at this time as we are liquidity poor.

2. Fixed assets: Long the investment vehicle of the masses, with depressed housing prices so go falling commercial real-estate values, shuttered investment banks, big box stores and retail or commercial construction.

3. Value investments: In a falling market traditional concepts of value are being challenged.

Intellectual capital may be the only sound investment at this time. Perhaps for many companies measuring intangibles may be all they have left to develop in the near future?

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