Accounting for the Coronavirus
This article examines challenges facing accountants due to economic and financial stress increasing at the same time that oversight may be relaxing, provides insight into the question of whether we should expect a rise in accounting manipulations, and concludes with comments on mitigating hindsight bias.
August 06, 2020 at 04:53 PM
20 minute read
This article appeared in Accounting and Financial Planning for Law Firms, an ALM/Law Journal Newsletters publication covering all financial aspects of managing law firms, including: building a law firm budget; rates and rate arrangements with clients; coordinating benefits for law firm partners; and the newest strategies to grow your firm and your career.
The economic shutdown resulting from the responses to the global coronavirus pandemic has disrupted all manner of business relationships governed by contracts. This has brought into sharp focus the critical governance role that accounting numbers play in many business transactions. In particular, they constitute a kind of "scorecard" for compliance with the terms of numerous types of contracts and agreements, such as debt contracts, supplier agreements, operating agreements, incentive compensation agreements, merger earnouts, and sales commission agreements.
Even in the best of times, accounting and financial reporting — which are often erroneously thought of as objective, straightforward exercises in number crunching — involve a considerable amount of subjectivity and judgment. In fact, they are subject to judgmental estimates that go far beyond simply recording the numbers, as well as beyond either voluntary or mandatory changes in the way the accounting numbers are derived.
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