Munich Personal RePEc Archive

Profits:The Economic or Auditors' Assessment?

De Koning, Kees (2012): Profits:The Economic or Auditors' Assessment?

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Companies of all types are regularly audited based on agreed International Financial Reporting Standards. Some governments, including the U.K. have set up: Whole of Government Accounts. This article focusses on the fact, which can be deducted from both the U.S. and U.K. data on the Balance Sheet of Households and Non-Profit Institutions, that the profit motive of some companies -banks for instance- can cause gains for individual households in some periods and losses in other periods. Homes represent an asset for individual households,which can be depreciated over its lifetime. Funding of homes -the liability side- can cause a different depreciation period if banks foreclose and force sell homes of doubtful debtors. Government debt also has an asset side, be it an intangible asset. It can also be depreciated over the lifetime of the beneficiaries, the individual households. Again the liability side - the funding- can force shorter periods of depreciation. Policy measures like economic easing can help overcome the depreciation gap between the asset and the liability accounting treatment.

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