Main Threads Section -
On the Edge
by Ron Baker
The present accounting model is over 500-years old and it is in bad shape. The traditional Generally Accepted Accounting Principles (GAAP) financial statements are based upon a liquidation value of a business, essentially historical cost assets less liabilities—an heroic attempt to assign static value to a dynamic concern.
The balance sheet dates from 1868, while the income statement from before World War II. The P&L statement was set up to account for the most important cost in an industrial society: cost of goods sold. But in an knowledge economy, cost of goods sold&mdashor cost of revenue—is less meaningful, with Microsoft averaging 14 percent of sales, Coca-Cola roughly 30 percent, and Revlon 34 percent.
by Ron Baker
On February 8, 2006, The Free Enterprise Fund and the Competitive Enterprise Institute (www.cei.org) launched a Constitutional legal challenge to the Public Accounting Oversight Board (PCAOB) created by Congress as part of the Sarbanes-Oxley Act of 2002 (SOX).
A recent University of Rochester study concluded that the total effect of SOX has reduced the stock value of American companies by a staggering $1.4 trillion dollars. The regulatory burden of this legislation absolutely outweighs its benefits.
by Ronald J. Baker
One of the greatest pains to human nature is the pain of a new idea.
–Walter Bagehot
There are two ideas that are killing our profession: Pricing by the hour and maintaining timesheets. They are stifling growth, wealth creation and innovation, inhibiting customer service, destroying morale and the quality of life, not to mention making the accounting profession less attractive to potential students. Even more disturbing, the consultants to the profession––supposedly the “change agents”––are playing a significant role in perpetuating this death spiral.
Had retailing been organized like the professions, supermarkets with lower costs and prices and a wider range of goods and services could never have emerged. Indeed, had the professions been dominant through manufacture and trade over the past two centuries, we would never have got to the horse-and-buggy stage, let alone beyond it.
––D. S. Lees, Economic Consequences of the Professions, 1966
Customers are best served when they have many competitive alternatives, and they are suspicious of self-serving monopolies. Of course, as sellers we all want to be monopolies, with little competition, the ability to charge high prices, bar entry to potential competitors, and be able to rest on our past successes and not have to perform the difficult job of constant innovation and experimentation where success is measured by the external customer, not internal industry standards, or ineffective government regulations.
