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Accounting for Lawyers:

Law schools typically used to require a basic one semester class - often pass-fail - on accounting for lawyers. I took it, then concluded I needed something more advanced outside of the law school curriculum. But at a minimum, the accounting for lawyers class, while not requiring much in the way of actual accounting, introduced lawyers to the vocabulary and concepts of accounting. Somewhere along the way, twenty five or thirty years ago, the requirement was downgraded so that it became merely another upper level elective.

As time has gone on, I am increasingly convinced that was an unwise demotion - and not simply because I teach business law. You can't read the front page of the Times or the Post these days without having a good chance of encountering the words "balance sheet." Very often the term is being used in an extended policy sense - referring, for example, to the balance sheet of the Fed or even the US government. Unless my law students have had some undergraduate class in the subject, typically they would not have the faintest idea what that meant or why - even in a largely metaphorical sense (e.g., when the Economist magazine talks about the world's balance sheet) - it is a relevant or important or meaningful way to express certain ideas. Leave aside the numbers, they simply have no idea what the vocabulary or underlying concepts are.

Ironically, when I was in law school, one of the reasons the class was demoted was not that the non-business oriented faculty dissed it. On the contrary, the corporate finance professors did not think it was important - pooh-poohing it as merely pointless recitation of historical events represented on the financials. They (we, let's be honest) had fallen in love with the idea that accounting was a wall-flower at the finance dance compared to the new beauty, discounted/anticipated future cash flows and valuations based around market proxies themselves premised around efficient market theory. We weren't wrong about future cash flows, but we now have a better understanding that accounting provides the framework against which one can work out one's notions of the future and appropriate discounts.

For that matter, I suspect that the fact that lawyers did not even know the vocabulary contributed to such things as Enron, in which there was a marked tendency of the lawyers to say that it was an accounting problem and they had no basis for knowing or inquiring about it. And then for the accountants to say it was a legal problem. (Of course, this has always been a standard little dance by law firms and accounting firms debating over who would opine about what in securities transactions, but it took a whole turn for the worse once the two no longer shared much idea of what the other did.) It would be easier to expect regulatory due diligence by the lawyers, even to ask for a layman's version of complex accounting structures, if the lawyers had some idea of what the basic terms of accounting are.

Many of my students have no interest in corporate law as such, but many of them hope to become civil or white collar criminal litigators, or regulatory lawyers inside or outside government. It is simply wrong to think that they do not need to understand the basic vocabulary and concepts of accounting to be able to be effective lawyers in those fields. And my experience of younger practicing lawyers is that they are so busy with billed hours and the training programs of law firms so reduced that they don't learn these concepts on the job anymore. (There is actually a greater rather than lesser burden on law schools to prepare students for practice these days, because the days are gone when a school - particularly the best ones - could assume that practice would do it for them.)

Uninitiated law students often believe that accounting is merely about counting things and sticking them in predetermined categories. In fact accounting is a rich intellectual endeavor in which the determination of what categories matter and why, and how one should interpret this item of income or whatever as going in this or that category - whether it presents an accurate representation of an enterprise - is as much interpretation and nuance and all that as law. It is as much about a deep representation of the world as law is. (I started out in tax law, and rapidly grew to have deep respect for tax accounting's intellectual enteprise.) Much of my practical work is with nonprofit organizations, and seeing how difficult the fundamental categories of nonprofit accounting are, both to adapt for-profit accounting categories to nonprofits and how to conceive of the categories in the first place, has given me a very deep appreciation of how much the intellectual interpretive activities of law and accounting share.

But does it require a required law school class? Law schools often these days have much grade inflation or, more precisely, grade compression against a maximum top grad. Any bad grade (resulting, for example, from taking an important, interesting class for which you have no prior background) can clobber your job opportunities. In my experience, and not just my school, I'd say any form of C is death, and my students look on a B- as pretty much death - I routinely field complaints telling me that a B+ will bring down their GPA. One of the considerable downsides of that form of grade inflation is to disincentivate a student from taking any class for which they cannot predict a minimum of B+ or A-, and it gives students a large incentive to focus on classes for which they already have a leg up from undergrad.

Whereas it is precisely the students without any background who most need exposure to it. There is nothing special about accounting for lawyers in that, but if you think it is as important as I've suggested here (and even understanding that every professor will enter special pleadings for his or her speciality as deserving to be required), yes, I think it was a mistake to let it slip from the 'required' category.

KenB (mail):
As a business lawyer, I have had occasion to regret knowing so little about accounting. And I have had disagreements with accountants over whether something was a legal or an accounting matter. What I've generally found, though, is that if you can get the accountant to discuss the issue with you, you find that the accounting issue depends on the answer to an underlying legal issue, e.g., when does a contract become binding. I'll opine on when a contract becomes binding, but not on when a transaction can be booked.
8.7.2009 12:40pm
ArthurKirkland:
I would not requiring every student to take a semester of accounting -- if only because there are many equally or more important subjects, and expansion of law school to a five-year program seems impractical -- but I have long believed it would be worthwhile to offer a series of compressed, introductory lessons as a complement to semester-long electives.

I sense that a number of subjects -- examples: bankruptcy, civil rights, agency, secured transactions, environmental law -- deserve simultaneously more and less attention than an all-or-nothing, semester-long elective provides. Devoting three weeks to each of a series of subjects strikes me as an experiment worth conducting. Expose students to the basics of terms and concepts, add a policy puzzle or two, and move on.
8.7.2009 12:48pm
wiselaw (mail) (www):
Thank you. This was a particularly insightful post.

In my law school days (back in the early 80's), accounting ed was not mandatory, but there was a pass/fail module in our Ontario Bar Admission programme that was little more than a beginner's bookkeeping course.

I would underline the importance of accounting in many, very common areas of legal practice not commonly understood by law students as requiring extensive financial acumen - family law and employment law come to mind, in particular as areas of my practice where I regularly deal with financial statements, business valuations and corporate tax returns, for example

While accountants are always available as experts to supplement the documentary evidence, it is clear that a deeper understanding by counsel of "the numbers" and what they mean can only assist us in our advocacy.

Yes, this is one area where law school definitely fell short.
8.7.2009 1:12pm
Michael F. Martin (mail) (www):
Prof. Anderson, I'm not sure why but practically every one of your posts has been resonating with me. After earning two technical degrees (in Physics and Chemistry) and a J.D., I still knew nothing about accounting before I took the job of working as a CFO at a VC fund. The punchline is that I did take a reasonable number of courses on transactional law while in law school (corporations, bankruptcy, secured credit). Would I have taken a course on accounting were it not required? No. Would the world be a better place, in my opinion, if lawyers were required to take a least a quarter or half-semester of accounting fundamentals? Without a question.

You should read some of what Charlie Munger and Warren Buffett have written about accounting rules. Buffett's take is in his very readable letters to his shareholders, which are collected in a volume edited by Cunningham. Munger is harder to find. The best source is the "Almanack," which includes a collection of his transcribed speeches mostly.

I think accounting is one of those functions that we like as a society to leave to the special people who enjoy the work and are trustworthy in doing it. Good accountants, like good lawyers, are a special breed. But as a societ we are unwise to trust accounting rules to the accountants for the same reason that we are unwise to trust the governing rules of any profession to the members of that profession. (What does this tell you about legal ethics?)

What top law schools need is a course on the reasons behind the accounting rules -- why was FAS 157 adopted? what makes mark-to-market rules procylical? What are the social costs and benefits of permitting SPVs? How do M&A affect financial statements for publicly traded companies and what kinds of discretion to managers have in reporting the costs and benefits of acquisitions?

These are questions that affect the dynamics of industry more on a day to day basis than many corporate governance rules combined. Yet there was no discussion of any of them in any class I took in law school (at either Chicago or Stanford) and I don't know that there were even any classes available at either school.
8.7.2009 1:13pm
Woodland Critter (mail):
As an accountant, I like to describe accounting as the vocabulary and grammar of business and financial transactions. If a person cannot understand the discussion or make themselves understood, are marginalized or ignored. Furthermore, they can unknowingly take unintended risks. My 401k frightens me and I at least understand its nature.

I believe that you make a very persuasive argument on the need for lawyers to understand accounting but the same could be said for those in the social sciences and even hard sciences. Perhaps accounting should be required at the undergraduate level along with writing classes.
8.7.2009 1:18pm
ASlyJD (mail):
I'm having a little bit of culture shock, possibly due to the rather unique culture of my third tier law school.

We have 26 hours of post 1st year required classes: Bus. Org., Fed. Tax, Civ Pro II, Evidence, Crim Pro, Prof. Resp., a Transactions class (Secured or Commerical), an advanced Tort (Business or Environmental), and a Research thesis.

Both Fed. Tax and Bus. Org. describe the vocabulary and conceptual basis behind accounting as part of their curriculum. Everybody, regardless of their intention of being a white collar litigator, gets exposed to these concepts.

The concept of the median grade at a law school not being a B is also a bit of a mindboggler.
8.7.2009 1:18pm
Cardozo'd (www):
I am a 3L at Cardozo Law. My corporations professor and leader of our schools Heyman Center (the business lawyers), Prof. Eric Pan, spent the first three weeks teaching a crash course in accounting and had a p/f exam at the end of the unit.

I don't think it was required....but he felt a need, and I'm thankful he did.
8.7.2009 1:24pm
pete (mail) (www):

Perhaps accounting should be required at the undergraduate level along with writing classes.


My wife has said the same thing about working in the non-profit world. No one around her knew much about accounting or even basic book keeping even though she worked with a bunch of people with masters degrees in various fields along with doctors and lawyers. Her best friend is CPA who also works in the non-profit sector and thinks this is a good idea as well and would make her job easier.

I think in general a good liberals arts instruction should at least include a survey course of business concepts since almost all students will find some of the information useful at some point in their life.
8.7.2009 1:30pm
Xanthippas (mail) (www):
I agree with this whole-heartedly, and wish law schools would adopt a trend of requiring (or at least offering) classes geared towards non-legal skills that attorneys should have, such as in accounting, or starting and managing their own practices. That should accompany a general trend towards more practical instruction, with more clinics, internship opportunities, and classes geared at how lawyers actually practice in certain fields of the law. As much as I enjoyed the intellectual aspect of law school, I will frankly admit that half of what I learned is useless to me now and that I could have learned how to actually be a lawyer in a considerably more effective fashion than I have (that is, mostly on my own.)
8.7.2009 1:37pm
A.C.:
Everybody needs basic accounting. I learned it on the job, long before I ever went to law school. Every organization that has money passing through it or that owns property (including churches, theaters, and so on) needs people who can see the financial side of what is going on.
8.7.2009 1:54pm
Hugh59:
I agree with you, Professor Anderson. Perhaps there should be prerequisite for accounting before admission to law school.

I attended the Ohio State University College of Law between 1982 and 1985. We had a mandatory Fed Tax course during our first year. There was an elective class, Legal Problems of Financial Information that was essentially "accounting for lawyers." It was taught by the wonderful Morgan Shipman. Inspite of the fact that I was a fine arts major before starting law school, my best area of study was taxation. I went on to the University of Florida and received my LL.M. in tax in 1986. Even then, I only had the barest understanding of accounting.

I came back to Ohio and, having some free time, I decided to take some undergraduate courses in accounting at Ohio State. I signed up for the basic accounting series. Someone told me that the intermediate series covered all the same issues and recommended that I take that level instead. I talked with the professor and he allowed me to enter the class.

The first six weeks was hell as we reviewed all the bookkeeping entries that we should have learned in basic. But then we moved on to studying accounting principles and I found it to be very easy...a new set of principles to learn that were not all that different from tax principles.

My exprience is that it is possible for a student to go all the way through studying for an LL.M. in taxation from a top program and have little exposure to financial accounting principles. I think this is a mistake.
8.7.2009 1:58pm
byomtov (mail):
What top law schools need is a course on the reasons behind the accounting rules -- why was FAS 157 adopted? what makes mark-to-market rules procylical? What are the social costs and benefits of permitting SPVs? How do M&A affect financial statements for publicly traded companies and what kinds of discretion to managers have in reporting the costs and benefits of acquisitions?

OK, but first you have to understand basic accounting. It's really not that hard, people.

many of them hope to become civil or white collar criminal litigators, or regulatory lawyers inside or outside government. It is simply wrong to think that they do not need to understand the basic vocabulary and concepts of accounting to be able to be effective lawyers in those fields.

This is an understatement.
8.7.2009 1:59pm
Thoughtful (mail):
There's no accounting for lawyers...
8.7.2009 2:01pm
BZ:
As a tax-exempt organization lawyer, I deal with accountants every day and all the time, even more so than in regular business counseling. There is the usual dance of responsibility, and I often say "that's an accounting question," but the reason is not ignorance. The reason is that accountants and attorneys working on the same problem have different rules and standards. For example, working on a particular part of a tax return may involve understanding not only Generally Accepted Accounting Practice (GAAP) and other accounting standards, but also IRS and state rules on various legal principles. How, for example, does one characterize "program" vs "fundraising" expenditures, which must be broken out separately on an exempt organization's tax/information return? The question is not so much accounting principles as transactional and regulatory analysis, none of which is exclusive to lawyers or accountants.

The parallelism is well-illustrated in questions like IRC section 4958, which prohibits "excess benefit transactions," and permits a "safe harbor" depending a professional opinion, which is a defined term including opinions from experienced attorneys, accountants and other qualified professionals. Any or all of them can issue the opinion, so long as the basis for the opinion is sufficiently clear. There is no monopoly on understanding to one profession, even on questions traditionally within that profession's purview.

I do this sort of interaction with the accountants and the accounting rules all the time. Yet I confess to never having taken an accounting course. Really, the rules aren't that hard to understand. And my needs are not to know which is a credit and which a debit. I just need to know the sort of business analysis tools and statutory responsiblities which any professional should know.

Nevertheless, I do recognize one truth, which is that accountants rule the world.
8.7.2009 2:05pm
frankcross (mail):
All very logical, though in my very distant experience, the teaching of accounting in law school was really terrible. For the theoretical case to be a decent one, you'd need people to effectively put it into practice.
8.7.2009 2:09pm
DiverDan (mail):
I was an Econ/Bus. Ad. major in undergrad, with an emphasis on accounting, and got my MBA and JD in a joint degree program. I worked in both a CPA firm and in the College Business Office as Comptroller before attending Law School. While I am very glad that I have an accounting background, and it certainly helps in Commercial Bankruptcy cases (including Bankruptcy Litigation, where the issue of whether or not the Debtor was insolvent at the time of a disputed transfer can be a hotly contested issue), from a purely legal point of view, unless you are practicing in Tax, Corporate Securities, or Commercial Bankruptcy, any detailed background in accounting is not really necessary, and may not even be helpful. The most important advice I could give to lawyers without any accounting background is as follows:

(1) Understand the basic Financial Statements - Balance Sheet, Income Statement, Statement of Retained Earnings, Cash Flow Statement, and the less common (but sometimes more informative) Statement of Changes in Financial Position. When I say "understand" these, I mean not only the basics, but the limitations of each - like the fact that a Balance Sheet prepared on a depreciated cost basis can often be misleading at best; if the Company is in an industry with very rapid technological changes, like manufacturing computer chips, those very expensive chip etching machines that are being depreciated over 5 years may be technologically obsolete within 6-8 months; for a Company heavily invested in Real Estate, a depreciated cost basis can either vastly understate or vastly overstate the value of assets, depending on the markets involved. Similarly, for the Income Statement, understand that it is only a snapshot of a given period, and only as good as the care with which revenues and expenses are truly matched. There are a HOST of ways, legitimate and not, to "doctor" the numbers, such as recognizing revenue which may or may not materialize (i.e., like Enron did for years), or capitalizing expenditures which really out to be expensed. And, for seasonal businesses, the income or loss from a given quarter can give a false picture of the health of the business.

(2) READ THE NOTES. The Notes to the Financial Statements are the single most important source of information; they disclose accounting methods, assumptions, even matters like contingent liabilities that don't get reported on the Balance Sheet. A company can have a very healthy Balance Sheet, yet be just months away from the Bankruptcy Court if there are large contingent liabilities just waiting to pounce.

(3) Cash Flow is often more important than reported income. There are several companies out there with year after year of net losses, but positive cash flow in every year. How can this be? Well, these companies have large non-cash expenses which reduce net income, like depreciation and amortization, that do not use cash flow. BUT, negative income and positive cash flow can signal that the company is eating up its future to generate cash, like every oil &gas company out there that isn't replacing the reserves it is depleting every year.

(4) KNOW WHICH NUMBERS ARE ESTIMATES, AND UNDERSTAND THE RISKS THAT THE ESTIMATES ARE OFF. Two very important examples: (a) Reserves figures for Oil &Gas Companies and Mining Companies - Exxon doesn't know with precision how many Barrels of Oil a given field will produce, or the future costs of secondary or tertiary recovery techniques necessary to fully recover what is underground; it doesn't even know the precise decline curve for a well (although that is much easier to estimate with some accuracy); it depends upon Petroleum Engineers to look at the geologic data and other info and come up with estimates, which can turn out to be wrong for any number of reasons; and (b) actuarial estimates, like funding requirements for pension and retiree benefit plans. If the assumptions underlying the actuarial estimates (like life expectancy, for pensions, or the assumed rate of increase in health costs, for retiree health benefits) turn out to be way off, these liabilities can make a huge jump.
8.7.2009 2:14pm
PatHMV (mail) (www):
My mother is a financial adviser who occasionally participates in specialized programs with lawyers and accountants to resolve divorce property settlements faster and easier. It's astounding how ignorant some lawyers are of basic accounting and financial issues, even when they work in a field (like divorce law) where such knowledge is pretty essential.
8.7.2009 2:15pm
Michael F. Martin (mail) (www):
The consensus seems to be that it would be very useful to have it as part of required curriculum, perhaps even for undergrads.

Given the consensus, it is startling to consider how the basics of accounting have been around since late-15th century Venice. Is accounting like calculus -- too tough to teach even though hundreds of years old?

More likely we don't learn it because we feel no motivation to do so. Math is for geeks. Accounting is for... accountants. Why learn something that I can hire somebody else to do for me?

Certainly specialization has its social benefits, but we may be running up against some inflection point in economies of scale now as people from all over the world have to be able to commmunicate in a lingua franca about the numbers that affect their livelihood. Without numerical fluency, coherence may be impossible.

I would like to see financial statements reengineered from scratch. Burkean conservatism makes sense most of the time and for most instiutions. But globalization and the Internet have changed things so much and so fast, that we might as well take the opportunity to rethink things from scratch.

Why do financial statements report only time-averages (income statement and cashflow) and snapshots in time (balance sheet)? Why not report a time-series of balance sheet accounts and a frequency spectrum of debits and credits for each account? That's how a 21st century engineer would design a financial statement.
8.7.2009 2:35pm
Bruce Hayden (mail):
This problem is not new. My father, who had an undergraduate degree in business (and whose mother taught accounting at the school where he got his BSBA), practiced law from 1950 until maybe ten years ago. And this was one of his pet peeves - that most attorneys didn't understand even the most basic balance sheet.
8.7.2009 2:47pm
Andy Rozell (mail):
I took two semesters of accounting as an undergrad before going to law school. I think it probably ought to be an entrance requirement.

At my law school, Income Tax was a required course. The professor (who was a lawyer/CPA) taught it more like an accounting class than a law school class. I can't imagine how else you would teach the subject.
8.7.2009 2:54pm
Stash:
While in law school I took accounting in the business school at the university. The law school gave credit for certain graduate business and economics courses, including accounting. So, I took "Labor Relations" and accounting in the business school, "Economics of Antitrust Law" in the school of econ and a joint Law-Business school seminar in securties markets. I think that it is a great idea for law schools that are part of universities with other grad schools to allow credit for taking classes such as these outside the law school. In other words, why institute a course that already exists on campus?

I have to agree that accounting is very useful for lawyers. In addition to the various areas outlined by others, it is an excellent area of knowledge for a litigator. Accounting issues can crop anywhere: contracts, shareholder disputes, securities and all kinds of business fraud cases, landlord-tenant and other leasing, royalties disputes, and even divorce and child-support cases.

I will add, however, that the vast majority of the accounting I learned was outside of school and was picked up on the fly during litigation. The tiny foundation of accounting I had in school does not scratch the surface of what I have learned during many hours consulting with accounting experts. What a lawyer needs in accounting knowledge is very similar to what is needed for any legal case: can you spot the issue? Beyond that, to the extent there is an accounting question, like any other specialized area, you will need an expert.

But at the end of the day, I am not sure that an accounting course should be a requirement, though it is broadly useful. For example, there is no "medicine for lawyers" who are going into the medical malpractice bar. Well before "accounting for lawyers" is required, I think an "economics of law" course would be wise. At least for those who, like me, practice in the 7th Circuit, the ability to make an economic argument to support one's legal view is worthwhile and can be decisive. Maybe an introduction to accounting and economics of law could be combined in a required course. The best one can hope for in either case is a bare introduction. I took a "Physics for Poets" a/k/a "Rocks for Jocks" course in college that left me with some basic knowledge and an intro to some otherwise mysterious terminology. I think that a law school course in accounting or economics can aspire to little more.
8.7.2009 3:08pm
WaltinPortland (mail):
First, I am blown away by the grade compression issue. Our median in the early 70's was a C+ and a B+ was a triumph. We used to laugh that the A students became law professors, the Bs became judges, and the Cs became successes. They made the money.

Second, I now teach paralegal courses leading to an Associate degree. Accounting is required. It isn't much but it is intellectually equivalent to the very basic accounting course I had to take in law school. And some lawyers don't have even that, now?

Hopping forward a coupla' intellectual steps, what's the chances law firms are paying way too much money to beginning lawyers, based on untested presumptions about credentials, arising out of law school experiences from back in the olden days?
8.7.2009 3:09pm
Guest12345:
Any good primers on accounting for lawyers without any accounting background?
8.7.2009 3:51pm
AccountingProf:
I was very surprised when my brother (NYU law school) told me that he took only one accounting course in law school. He was actually preparing for work in business law, and now he negotiates entertainment contracts. Presumably he has learned some accounting since then; otherwise, I can't imagine how one would negotiate gross-revenue sharing agreements, much less profit-sharing agreements. If you don't know why the latter are so much more complex and detrimental to the entertainer, you definitely need more accounting! Of course, you can guess by my handle that I am biased!

Law does indeed figure prominently in accounting standards. For example, the Financial Accounting Standards Board is currently debating when to recognize revenue, and when to record a liability. The current proposal for revenue is to base revenue recognition on the terms of the contract, and for long-term contracts, when legal control passes from the seller to the buyer. And definitions of liabilities look to whether a party has a legally enforceable obligation.

If you want a little more insight into how accountants think, you can check out the FASRI blog (http://fasri.net). This is directed at accounting professors who are interesting in standard setting issues, so some of the posts assume a fair bit of knowledge. But we try to keep it informal and lighthearted.

Finally, I must say I am delighted to see this blog address accounting issues, since The Volokh Conspiracy has been an inspiration for me, as I try to build a community of blogging accountants. It isn't easy, and you guys have done a tremendous job. But then, maybe lawyers just like to expound!
8.7.2009 4:20pm
troll_dc2 (mail):
I e-mailed this blog to an accountant friend of mine, and this is his reply (which he authorized me to quote):


Some of the comments are kind of amazing. Many suggest that the article(?) is wrong in its assertion that lawyers should take at least one basic accounting class. That blows my mind. It's one thing if you're going to be going into criminal law, but it's ridiculous not to take an accounting course if you're going into business law. After all, one of the commonly used non-technical definitions of accounting is "it is the language of business." If you cannot speak it, how can you expect to do your job competently? Law in Society and Business Law for Accountants are two required courses in most accounting programs around the nation. We, for good reason, are expected to know something about law. Regulation (read law) is one of the four parts of the CPA exam.

Accountants take two law classes and graduate with a BA or BS. Lawyers go to law school and take no accounting courses at all? Wow. I had no idea. I honestly thought, before reading that article, that lawyers would have to take at least 4 or 5 classes over the course of their studies.
8.7.2009 4:35pm
guestagain (mail):
"I sense that a number of subjects -- examples: bankruptcy, civil rights, agency, secured transactions, environmental law -- deserve simultaneously more and less attention than an all-or-nothing, semester-long elective provides. Devoting three weeks to each of a series of subjects strikes me as an experiment worth conducting. Expose students to the basics of terms and concepts, add a policy puzzle or two, and move on."

This is the right solution. And it might make the third year actually worthwhile :-) Income tax also needs to be added if its not mandatory. And in undergrad? Why not back even further?

BTW, the PLI offers some CLE on accounting and generally their courses are pretty good.
8.7.2009 5:00pm
Andy Rozell (mail):
"Any good primers on accounting for lawyers without any accounting background?"

There's a book called Practical Accounting for Lawyers.
I think Wiley published it and I don't remember the author's name. Somebody borrowed mine and I never got it back.

It's about 25 years old, but the basics of accounting don't really change.
8.7.2009 5:44pm
Elliot123 (mail):
I was once deposed by a lawyer who did not know the difference between capital and expense accounts. It was an amazing transcript.
8.7.2009 9:12pm
Porkchop:
I spent quite a few years investigating and prosecuting auditors in administrative proceedings for a federal banking agency.

There are really two separate areas to address -- knowledge of basic bookkeeping and knowledge of accounting and auditing principles and concepts.

Bookkeeping was an issue sometimes in cases directly against the banks. (More banks than you might imagine are unable to balance their books. That may shake your faith in the financial system -- and it should.)

Most of my cases, though, involved problems with revenue and expense recognition, timing issues, impairment of assets, asset valuations, loss allowances -- and related audit issues. There's a lot of room for judgment in those areas (not as much as the people on the other side thought, though), so it is important that the lawyers involved become very familiar with GAAP and GAAS literature. One of the things that always surprised me was that many of the auditors I questioned did not really understand their own literature -- even allowing room for interpretation, some of their answers showed a shocking inability to read the English language,

The lawyers who had zero background in accounting (and there were quite a few) were not particularly helpful to their clients. There was a tendency to accept the client's interpretation of a matter as definitive without looking further. That put them at a significant disadvantage in dealing with us.
8.8.2009 9:49am
stoptobebanningtheTCOsomuch:
Robert N. Anthony Essentials of Accounting (Addison-Wesley). It is a programmed instruction book. You just fill in blanks to teach yourself the concepts.

In under 20 hours, you will have all the basics. Which is all you need. Can always go back and look up definitions, but need to understand concept of balance sheet and income statement.) It is VERY easy to read. Fine for all your liberal arts fluffheads.

Also, Merrill Lynch "How to read a Financial Report" (1997) is a very simple and easy overview.
8.9.2009 10:06am
stoptobebanningtheTCOsomuch:
The Anthony book is easy enough to be assigned as self-work (perhaps with a graded entry test) prior to start of a semester. I was required to work it on my own before taking a valuation finance class (and got most of it done on a long plane/train trip.)
8.9.2009 10:09am

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