FASB is the villain

After I heard this from an audience member for the third time, I realized I was perhaps on to something. This third time came when I was presenting a keynote at the University of Nebraska in Omaha, hardly a hotbed of radical CPAs. 

With the flood of complex changes to GAAP foisted upon us in recent years, it’s no wonder that accountants – and our clients – see FASB as a villain. Not only is FASB considered the enemy, but I recently learned that GAAP is the name of an actual demon!

The guidance from FASB is getting more and more complex. In 2018, the entire codification was over 10,000 pages, in five volumes that were more than a foot high. This complexity translates to full employment for CPAs and auditors. But for business owners and other stakeholders, this is incomprehensible and of minimal value.

Following GAAP and getting an audit are what business owners have to do, not what they want to spend money on. After all, what value is an audit report that’s dated three months (or more) after the end of the year?

GAAP is out of touch with today’s economy

The basic format of a set of financials hasn’t changed much in the last 100 years, as Baruch Lev and Feng Gu point out in their book, The End of Accounting. In that book, they put the 1902 financials for US Steel side by side with the 2012 versions. Except for the numbers, the format and the categories are exactly the same. 

What’s changed in the last 100 years is our economy. Back in 1902, businesses were far more reliant on heavy equipment and machinery. In today’s information age, customer lists, patents and intellectual property are more valuable. 

As Lev and Gu point out, the most important things for investors and analysts today aren’t even on the balance sheets. You won’t find contracts, proprietary know-how, and employee knowledge, except as an afterthought in the notes. In our current knowledge economy, the most important asset is the combined skills, proprietary processes and knowledge of employees. Yet the costs for developing “the most important asset of our company – our people” are expensed.

Another big change is the rise of the subscription economy, as Tien Tzuo describes in his book Subscribed. Today, besides all the SaaS applications we have on our smartphones, you can subscribe to almost anything under the sun. Toilet paper, vitamins, dog food, clothes – and even cars! Hertz and Porsche both have subscription offerings that let you swap out cars for a monthly fee. 

But as Tien Tzuo points outnowhere in GAAP-basis financials will you find any of the numbers that are important to a SaaS company. No annual recurring revenue, no customer churn rate, not even the number of subscribers. 

When GAAP doesn’t make sense

Now according to the FASB’s own website, their mission is “to provide useful information to investors and other uses of financial reports.” What a noble goal. But how do you square that with the contradictory results that the head of a SaaS company shared with me when they implemented ASC 606?

Previously, revenue for the implementation phase of a contract was recognized upfront, while the periodic revenue was recognized over time. But under ASC 606, that implementation revenue is recognized over the expected life of a contract. Not a problem if your customers stick around for the entire contract period. But now, losing a customer – which is operationally bad – results in immediate recognition of the remainder of the implementation revenue – which pumps up revenue. 

So, if you give your customers such lousy service that your churn rate goes through the roof, your financials will still look great because you’re pulling all that deferred revenue to the top line. How does that make sense? 

This complexity and irrelevance have led to an increased use of non-GAAP metrics, which are perhaps intended to give investors more realistic information, but in reality, can be manipulated to conceal less than perfect performance. In 2017, 97% of companies reported non-GAAP financials. This likely contributed to the rapid downfall of WeWork – just WTH is “community-adjusted EBITDA??”

The black box that is GAAP

Of interest to leaders of CPA firms, this complexity leads to a value gap between what we do and the value we bring to our clients. Our work has become a black box that they can’t see inside. How many of us have become the reluctant biller, embarrassed to charge a client for complex work that largely remains invisible to our clients? 

If we don’t have the ability to explain the complexity behind the numbers, then our clients indignantly ask us “how hard can it be to put numbers in boxes?” Translating what we do into normal English isn’t generally in the CPA’s toolbelt.

Slay the FASB villain by becoming data storytellers 

FASB and GAAP are not likely to change much in the near future, so our role must be to translate those rules into English. But we can’t stop at explaining FASB rules. GAAP-basis financials are backward-looking. They don’t contain the insights they need to grow their businesses. 

We need to evolve to become data storytellers. As data storytellers, we can guide our clients to slay the FASB villain and help them to be the heroes of their companies. Stories help us connect what’s in their numbers to what’s in their hearts. 

Business owners and entrepreneurs don’t think the way we do as accountants. We have insights into company performance that we’re not sharing. But when we share those insights in story form, we shine a light on their path forward.  

AI and technology remove the human error and the manual effort so we can spend our time on the higher-level work that computers can’t do. With technology tools as our allies, we can 

uncover the hidden treasures in our clients’ numbers. We can show them the real trends so they can make decisions based on data, not just the gut-level instincts they have relied on in the past.

Our superpower is knowledge of accounting. We can help our clients defeat the villain of FASB by using our superpower for good in the world.  

Published in Accounting Today, January 15, 2020

Three Must Have Travel Apps


PeterMargaritis_silhouette of person in the airport

Whether you are a road warrior, like myself, or just the casual traveler, you know how hectic traveling can be.  There are some travel apps available to help reduce the stress of traveling. Here are my top three must have apps.

  1. TripIt: This has been my favorite for the past couple of years because it keeps me organized on my flights, hotels, rental cars, etc.  And it is so easy to use.  Just link your email to TripIt, and it will automatically import your travel plans into your master itinerary, so everything is in one place.  Or you can go “old school” and forward your itinerary to plans@tripit.com to build your itinerary.  Tripit is viewed on all mobile devices and your desktop.  You can share your itinerary with anyone, and it will synchronize with your calendar.  You can upgrade to the pro version for $49/ year, and that gets you some cool features.  You will receive real-time alerts on delays, cancellations or gate changes.  It also helps you find alternative flights should your flight get delayed or canceled.  There is a seat tracker and points tracker feature.  TripIt also tracks the number of days and miles traveled for that year and in total.  For example, as of this writing, I have taken 31 trips, traveled 112 days, over 36,500 miles, been to 44 cities and two countries.  
  2. Uber: Why would anyone take a cab when you can Uber?  It costs half the price of a traditional cab, and you don’t have to worry about payment because they charge your credit card and include the tip.  The cars are clean, and there is no sign that says, “Vomit in the cab – $50”, gotta love Chicago cabs.”  I have never met an Uber driver that doesn’t like their job.  Many have quit their full-time job to drive for Uber.  More and more cities are allowing Uber to pick up from their airport. However, there are still a few like Boston and Orlando that don’t. Before any trip I Google “[city and state] Uber pick up at airport” to see if they allow it.
  3. Waze:  I remember taking those long family trips and using AAA’s Triptik.  I missed it a little but got over it when I started using Waze. This GPS app is free and in real time because it uses crowdsourcing to help detect the police, accidents, traffic jams, etc.  When Waze users get stuck in a major traffic jam they send an alert and depending on your location; the app will try to find you an alternative route.  The first time this happened to me, I did not trust Waze and instead of listening, I was stuck in a major traffic jam that lasted two hours.  A cool feature is you can change the Waze voice to either a male or female with different accents or languages or even to Tyler Perry’s voice from the movie Boo! A Madea Halloween.  What a fun marketing angle.  

These three apps have made my travel life a bit less stressful, and every little bit goes a long way.  Please leave a comment on your favorite travel app, and I will compile them and add them to a new blog posting or turn them into a new podcast episode.  You can find my podcast on my website at http://petermargaritis.com/category/podcasts/ or download them on iTunes, Stitcher or Google Play