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Building a better income statement

Annual Income Statement Best PracticesFound this article mentioned in the Dec 2013 issue of CFO. "A company’s annual income statement should be a transparent disclosure of its revenues and expenses that investors can readily interpret. Most aren’t, largely because income and expenses classified according to generally accepted accounting principles (GAAP) can be difficult to interpret." Maybe the author's have a point - an income statement that makes sense. http://www.mckinsey.com/insights/corporate_finance/building_a_better_income_statement What do you think?

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Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Wayne,

Nice Q: and a pet peeve of mine. Working in Software / SaaS and related, GAAP seems like it was written by [insert snappy / unflattering description]. Games space rev-rec is the worst of all; GAAP is clearly and demonstrably misleading. Enterprise licensing is about as bad, being a "square peg-round hole" situation in most cases.

Humorously, the standard MBA accounting class discussion is to dissect GE's financials and figure out how they are managing earnings. A decent GAAP would have fewer levers and would prevent this.

I disagree with some of the statements in the McKinsey report, but generally they are preaching to the choir.

Steps have been taken, such as the line-of-business approach, which if fully implemented in its logical extreme would be excellent. Where I agree with McKinsey is that there needs to be a distinction between operations and others, and per the prior sentence I think we're proceeding.

To me, the devil is in the details, which is not addressed in the report.

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