Importance of Accounting for Investors

Posted on | November 6, 2010 | No Comments

The importance of accounting for investors is huge! Accounting is the language of business. That is what management uses to ‘communicate’ performance to the outside world. However management often wants to communicate only favorable news and this communication is often ‘mis’ communication.

Accounting for investors: Even if we assume that managements dont intentionally ‘mis’-communicate results, understanding accounting is critical for investors as it help explain whats going on inside a company.

A classic example from the last few days have been the huge story that Apple’s (AAPL) gross margin has declined in the fourth quarter ending on September 2010. Investors worried as Apple’s management said on the quarterly earnings call that the decline was due to the higher cost structure of their new products the iPad and iPhone and because of the exceptional value it is passing on to customers.

Turley Muller has a different take! He attributed the lower gross margin due to increased warranty provisions.

Apple’s warranty accruals had been averaging around 1% of revenue for the first three quarters of FY10, or roughly ~$150M. In Q4, warranty accruals ballooned to $457M, or 2.3% of revenue.

 

Turley’s point is that if warranty accruals have not increased, than AAPLs gross margin will bounce back. Whether this is true is a separate question. But this important observation required accounting for investors. This was an observation that saw through the management’s intentional or unintentional silence on this significant cost item.

Read Turley’s blog for interesting stuff like this.

Nobel Prize for Accounting!

Posted on | September 18, 2010 | No Comments

Accounting can be fun too. Even if it is not when doing accounting homework!

Accounting Tutors have a sense of humor.

We found this funny cartoon at a fasttrac.co.za. Enjoy accounting.

Learn Accounting?

Posted on | August 7, 2010 | No Comments

How many ways can you learn accounting?

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Read the ‘learn accounting‘ page and tell us how many ways there are to learn accounting!

Deferred taxes

Posted on | August 4, 2010 | No Comments

SEC: Securities Exchange Commission

Posted on | July 20, 2010 | No Comments

The U.S Securities Exchange Commission is the federal body governing financial accounting securities and exchange in the USA.

SEC functions with an aim to safeguard the financial accounting sector by maintaining order and keeping the investors educated and well informed about the securities market. SEC seeks to promote capital formation as it is essential to sustain economic growth.

SEC follows a simple rule to govern the securities industry via a simple concept: all investors, irrespective of the kind, should have access to certain basic facts regarding an investment before purchasing it, and so long as they own it. For the same, SEC makes sure that companies provide financial and other meaningful data to the public. This enables the public to have a common pool of information regarding the different investment opportunities in the market and decide for themselves on what could be the right choice.

SEC inspects the key players in the securities world (securities exchanges, securities brokers and dealers, investment advisors, and mutual funds) regularly to avoid frauds.

Among other responsibilities SEC is assigned to interpret the federal securities law, amend existing rules, create new rules, oversee securities firm, brokers, investment advisers, and ratings agencies, oversee private regulatory organizations in the securities, accounting, and auditing fields and coordinate U.S. securities regulation with federal, state, and foreign authorities

For more information on SEC’s mission, functionality, structure please refer to

Links Used: http://www.sec.gov/