I had a very good lecturer for my accounting class while at Columbia University. He was a Columbia Business School associate professor who used to work for Arthur Andersen, one of the Big 8 auditing firms. This professor was a big improvement over the previous undergraduate accounting lecturer, a middle-aged woman with a dry teaching style who wore athletic sneakers under an ankle-length dress.
My accounting professor made the subject interesting by stressing how not one single number on any financial statement besides some cash flow figures can be verified. Pretty much everything from balance sheets’ assets and liabilities to income statements’ revenues and expenses is subject to managers’ (sometimes “creative”) interpretation. In publicly-held firms, financial statements are important to shareholders who use them to assess the performance of their investments. This requires management, however, to report financials that reflect reality. In truth, management can use accounting concepts such as depreciation, asset securitization (aka CDOs), and expense capitalization to distort a firm’s performance or just straight-up lie.