Blog post

Confusing accounting

November 17, 2014 · by Jan Schultink
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Accounting regulation and business reality can sometimes be far apart. A client could show incredible revenue growth because it was forced to recognise revenues early because of accounting regulations. At first sight, it looks great, but as soon as an analyst tries to dig in only a centimeter deeper (“Why does the cash flow not match?”) the story starts to unravel.

Yes, you can explain them how undo the accounting policies, yes a good analyst will probably ignore the profit and loss account (which is merely a tool to set tax rates), and focus on the cash flow. But, you left an impression of hiding the truth. And that leaves a bitter after taste with investors even if the company is actually doing very well (even without the help of obscure accounting policies).

You might have to come clean up front.

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