Five things non-accountants should know

By Eve Samples

The Palm Beach Post

(Editor's Note: Eve Samples, a business writer for the Palm Beach Post, covered the accounting session by UNC-Chapel Hill accounting professor Doug Shackelford at the fall SABEW conference held Oct. 20-21.)

CHAPEL HILL, N.C. -- Doug Shackelford talks to about one reporter a week, and the University of North Carolina accounting professor admits that he is immediately suspect when it’s clear they haven’t done their homework.

With that in mind, he schooled writers and editors at SABEW’s fall conference about the five things non-accountants should to know:

1. There’s only one joke for accountants

A guy walks into a bar and asks an accountant, “What’s 2+2?”
The accountant replies, “What do you want it do be?”

OK, the part about the bar is my own. And it’s not a particularly funny joke. But the point is salient: The most important thing an accountant does isn’t addition — it’s judging the relevance and reliability of numbers, Shackelford said.

Accountants have to weigh current prices against historical costs to settle on figures. When Delta Air Lines decided to depreciate its planes more slowly than in the past, the press reported Delta was doing it to make income look higher.

That may have been part of the reasoning, but there was a practical reason, too, Shackelford said. It’s because the airline was flying more long-distance routes and fewer puddle-jumper flights. That put less wear and tear on the planes, so they depreciated more slowly.

“That judgment, discretion and flexibility is not necessarily bad,” he said.

2. Have a glossary

Know that different terms are used to describe book numbers and tax numbers.

What’s called revenue on the books is called income on tax forms. Expenses on the books are deductions on the tax side. Net income before taxes on the books is taxable income for taxes. And so on.

Make a guide and have it handy when you call your accountant sources.

3. Tax expense does not equal taxes paid

The tax figures listed on financial statements are not an indication of taxes a company paid that for that year. Taxes on financial statements are what a company expects to pay in taxes — in the past, present and future — based on the current year’s activities.

Want to know the actual taxes paid? It’s tricky.

Tax returns aren’t public. That’s because the Securities and Exchange Commission doesn’t think there’s demand for the forms, Shackelford said. I know some reporters who would beg to differ.

4. The book-tax conformity issue

Shackelford thinks it’s a terrible idea to force book numbers and tax numbers to conform. He has testified in Congress against it.

Why? He thinks financial statements play a unique role by allowing managers to communicate with skeptical outsiders. And tax figures are important because they conform to rules and involve little judgment and discretion.

5. What’s hot

Shackelford also dropped a few tips on stories he thinks have been underreported.

For one, auditors are actually auditing again. And in the Sarbanes-Oxley era, all companies are spending lots of money on audits, which has driven up fees for the once-beleaguered auditing industry.

“It’s one of the ironies of the entire thing,” Shackelford said. “The accountants did so bad that they got rich.”
Because of the stringent accounting measures that came with Sarbanes-Oxley, Shackelford foresees more companies moving abroad to take advantage of international accounting standards.

“London is going to become what New York has been, and the power of the SEC is going to be greatly diminished,” Shackelford said.

Posted Oct. 31, 2007