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I wonder if companies have a fiscal accounting and an economic accounting. The latter would be used to base economic decision on. That accounting should show a

I wonder if companies have a fiscal accounting and an economic accounting. The latter would be used to base economic decision on. That accounting should show a nice profit in EU countries.

wongarsu 9y ago
If you learn accounting in Germany, there's external accounting and internal accounting. External accounting is what you show your investors and tax authorities. It has to conform to all relevant laws, and you play your usual tax avoidance games. Both of those make it fairly unusable for decision making. Internal accounting is what you base your decisions on, and you can do whatever you like (since you aren't showing it around). It just has to provide insight. For example you can have departments do virtual payments to each other for production steps and services to help you quantify how well departments are doing. In English/US accounting traditionally you would only do fiscal accounting, but doing internal accounting as well is getting popular.
ucaetano 9y ago
They do, and they frequently release the numbers (often calling it non-GAAP). The issue is that accounting is very complicated. Like really, really complicated. And that's because you're trying to make a lot of very different companies follow the same rules on how to recognize revenue, costs, investments, etc. For example, here's a real world problem I came across once: how do you recognize the revenue of selling virtual tractors on FarmVille? - When the sale takes place? - Over a pre-set period of time, determined by the average lifetime of an user? - Over a pre-set schedule that follows depreciation schedules of real tractors? Economic is even more complicated. Economic profit takes in account the cost of opportunity, so a company might have accounting profit but no economic profit. It gets even worse when you're talking about cross-border accounting. In other words, companies usually have managerial accounting using their own internal rules, and standards-based accounting (GAAP, IFRS, etc.), to report operations to the government and to the owners.
ryanworl 9y ago
Yes, this is called “managerial accounting” in business school.

I wonder if companies have a fiscal accounting and an economic accounting. The latter would be used to base economic decision on. That accounting should show a nice profit in EU countries.

wongarsu 9y ago

If you learn accounting in Germany, there's external accounting and internal accounting. External accounting is what you show your investors and tax authorities. It has to conform to all relevant laws, and you play your usual tax avoidance games. Both of those make it fairly unusable for decision making. Internal accounting is what you base your decisions on, and you can do whatever you like (since you aren't showing it around). It just has to provide insight. For example you can have departments do virtual payments to each other for production steps and services to help you quantify how well departments are doing. In English/US accounting traditionally you would only do fiscal accounting, but doing internal accounting as well is getting popular.

ucaetano 9y ago

They do, and they frequently release the numbers (often calling it non-GAAP). The issue is that accounting is very complicated. Like really, really complicated. And that's because you're trying to make a lot of very different companies follow the same rules on how to recognize revenue, costs, investments, etc. For example, here's a real world problem I came across once: how do you recognize the revenue of selling virtual tractors on FarmVille? - When the sale takes place? - Over a pre-set period of time, determined by the average lifetime of an user? - Over a pre-set schedule that follows depreciation schedules of real tractors? Economic is even more complicated. Economic profit takes in account the cost of opportunity, so a company might have accounting profit but no economic profit. It gets even worse when you're talking about cross-border accounting. In other words, companies usually have managerial accounting using their own internal rules, and standards-based accounting (GAAP, IFRS, etc.), to report operations to the government and to the owners.

ryanworl 9y ago

Yes, this is called “managerial accounting” in business school.