We had our third class this afternoon. By now, my students have a feel (I hope) for the need to use financial accounting information to make decisions. Today, I told them that the numbers they are seeing are presented fairly in accordance with US generally accepted accounting principles. We discussed what that could possibly mean.
Why are reported numbers not absolutely correct in every situation?
What is the role of generally accepted accounting principles and who creates this GAAP?
What would be the result if there were no rules, if GAAP did not exist? (I always view this as an essential question in understanding the importance of rules.)
Immediately after class, I sent them the following email. Especially over a week-end, I like to link the class that they just had to the one that they will next have.
“Here is the opening question for Monday's class. In its financial information for 2009, Apple reported sales of $36,537,000,000. What can we say with confidence about that figure? I'd like to start class by making a list of everything we can say about that figure. I believe we can probably come up with 4-6 things that we now understand about the information that is being conveyed by Apple. ”
What do I expect the students to come up with as a response. With college students, you never know for sure but here is what I am hoping for:
--$36,537,000,000 is not the exact amount of sales for Apple but it is a fair representation of that figure.
--$36,537,000,000 is the sales figure presented fairly in accordance with US GAAP.
--$36,537,000,000 is a number that decision-makers can use with confidence as they make decisions.
--$36,537,000,000 is a figure that contains no material misstatements according to US GAAP
--$36,537,000,000 provides a portrait of the company’s sales, not an exact amount but one that resembles reality enough to be usable by decision-makers.
--$36,537,000,000 is the number Apple determined using the rules created by FASB and other authoritative bodies.
--$36,537,000,000 is a number that contains no material errors or fraud.
If I can get all of those (and I guess we’ll see on Monday), then I will believe that my students have gotten away from the idea of accountants as bean-counters and have started realizing the need for rules and how those rules can help us derive usable information that we can rely on in making decisions. Then, when we start learning those rules, they’ll have an understanding of their use and importance.
As I told my students: HAVE A GREAT WEEK-END!!!