Business Evaluation Based on Accounting Polices (Part 4)

In conclusion of Capital Corp Merchant Banking’s concise review of important accounting policies that must be taken into account to complete a full businesses evaluation, we would like to briefly highlight a few more brief examples below:

-    A reserve account, which is charged against income that in one’s professional opinion is likely to not be enough to address a forthcoming loss/expense.

-    Adjusting the time period according to management discretion in regards to the capitalizing an asset to increase/decrease current income and thereby decrease/increase future income.

-    Keeping certain subsidiaries, especially those below defined the “wholly owned” percentage, out of the financial and tax reporting disclosures.

-    Choosing to pay certain bills before they are due and thus not recording this as a pre-payment as a way to reduce current income and decrease corporate tax obligation.

In summary, the main goal of this five-part series was not so much to provide its reader(s) with all the “tricks” of the trade when it comes to corporate accounting, but rather to give the reader(s) a brief summary the decision-making process of executive management who may have, either willingly or unknowingly, elected polices to inflate or depress revenue.  Therefore, all outside parties must question every accounting decision to ensure the validity of an investment into any given  company.

Respectfully,

Capital Corp Merchant Banking