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Accounting is actually very different today than it was ten years ago. The rise of spreadsheets has made things possible that wouldn't have been when manual cal
by Naga 10y ago
Accounting is actually very different today than it was ten years ago. The rise of spreadsheets has made things possible that wouldn't have been when manual calculation was necessary. What is unfortunate are that estimates are required in many cases, but it is just the way it is. For example, how can you know for certain what the present value of the cost of decommissioning a nuclear power plant in fifty years? These estimates are already included in the notes of the financial statements, which in many ways are more important than the actual financial statements.
But as to your Coca-Cola example, internally generated brands are not included on the balance sheet as assets. "Coca-Cola" isn't considered an asset to the company because of how difficult it is to value it.
- sergiosgc 10y agoYup, the Coca-Cola example is bad, as it was a brand never valuated in the market. However, the reasoning holds for many other assets. Think of an office tower. It will be in the balance as an asset, with a given valuation and no error margin. That's insane.
- notahacker 10y agoThere's a simple enough reason for that: there's no confidence interval on the firm's tax obligations. The firms specialising in asset valuations the firms use as independent justification for their accounting values are usually more than happy to provide confidence intervals or upper and lower bounds[1], and equity analysts are more than happy to note that a large portion of a company's valuation comprises assets sitting on their balance sheet that might be vulnerable to a sharp drop in valuation in a downturn. There's a sizeable haircut (essentially the lower bound of the lenders' accepted confidence interval) applied on any assets a firm tries to use as collateral too. Just because the retail investor isn't presented with a nice little table of upper and lower bound measurements on a firm's balance sheet doesn't mean it isn't taken into account in a publicly listed firm's price. And ultimately, if a firm is more vulnerable to uncertainty about values of its assets than uncertainty about how big its future revenues might be, it as bigger issues than the clarity of its accounts.
- dragonwriter 10y agoThe rise of spreadsheets (and more focused, purpose built, accounting automation) replacing manual calculation in accounting isn't a change of the last ten years.
- fitchjo 10y agoJust to clarify, the main reason that the "Coca-Cola" tradename is not a recognized asset is because it was generated by the Company and not purchased, not because of how difficult it is to value. I agree that accounting is very different than it was ten years ago, but I think that has more to do with SOX and the increased requirements related to financial controls. The FASB (accounting rule-making body) has tried to improve the disclosures for those items that are difficult to value, but the subjectivity of these valuations will continue to exist for the foreseeable future.
- Naga 10y agoYou're right. Difficult was probably the wrong word. It would open the door to too many overstatements if companies could value their own brands.