Page 122 - (DK) The Business Book

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IN CONTEXT
DO NOT LET FOCUS
Governance and ethics
KEY DATES
YOURSELF BE 1978 US scholars Ross
Watts and Jerold Zimmerman
write Towards a Positive
Theory of the Determination
INVOLVED IN 1995 French professor Bernard
of Accounting Standards.

Colasse claims that “there isn’t
A FRAUDULENT any true result, but a result
arranged using creative
accounting techniques.”

2001–02 Telecoms giant
BUSINESS WorldCom overstates earnings
by more than $3.8 billion.

PLAY BY THE RULES 2009 UK professor David
Myddelton publishes Margins
of Error in Accounting.
2012 Directors of US discount
website Groupon identify
a “weakness” in financial
reporting, five months after
becoming a public company.

usiness accountants have
two roles: to record profits
B and cash flow and to provide
tightly estimated data about costs
to help make strategic decisions.
The accountant’s instinct is to be
cautious and prudent—costs and
cash-outflow figures generally err
on the high side, while revenues
and cash inflows tend to be on the
low side. Any surprises should be
positive. For example, in January
2009, Honda Motor Company
warned that dramatic falls in sales
worldwide—due to the global
downturn and the strong Yen—
would force the company into a $3.7
billion loss in the fourth quarter of
its financial year. However, the loss