Some Fun with Accounting Definitions

I noticed that consulting giant Deloitte Consulting released a software program – Bullfighter - that identified and helped eliminate business jargon. Author’s Note: On Deloitte’s website it states that they are no longer associated with any product that tries to make financial information clearer to the investor (or something to that effect.)

I thought it might be helpful to investors if I defined a few important accounting terms in light of recent corporate events.

Balance sheet – a place to hide the other side of a fictitious transaction.

Income statement – a description of the money that companies don’t really make, but show to investors.

Cash flow statement – a description of how companies take money from their investors and give it to their top executives.

Accountant – someone hired to explain how companies really made more money than they actually did.

Accounting standards – a group of words that allow companies to do anything they want to do.

Big bath – How companies take a $2 per share loss and make it into a $4 per share loss so next year’s loss won’t look nearly so bad.

Bottom line – the tip of the iceberg.

Derivative – a financial instrument that is derived with the idea of stealing your money.

Financial instrument – similar to a medical instrument used for small, dark places.

Off-balance-sheet financing – a technique used when you can’t find a reasonable place to put the other side of the entry.

Principles vs. rules – a choice of ways that accountants and companies can use accounting standards to confuse investors.

Smoothing – a technique of reversing reserves that shouldn’t have been recorded in the first place.

Stock options – a financial instrument where the company has the option of screwing the IRS or the investors.

One of my favorite ways to use business jargon is through circular definitions – where one term is defined by another unintelligible term. However, sometimes this method can be very informative.

Enron – see Global Crossing
Global Crossing – see Adelphia
Adelphia – see Xerox
Xerox – see Tyco
Tyco – see Health South
Health South – see WorldCom
WorldCom – see Enron

Of course, every one knows that I am just kidding and having a little fun. Obviously a statement of cash flow is really a place where companies hide money they give to influential politicians so real solutions to serious problems will never take place.