A Word with Sir David Tweedie

About a month prior to the Lehman Brothers bankruptcy filing, Sir David Tweedie, Chairman of the International Accounting Standards Board, famously stated:

“What is the alternative? Fair value might not be perfect but it is the best we have got. Values have gone down, so you have to write them down. Do you want transparency or obscurity? Transparency always works as people are forced into the open.” (Essen, Yvette, Daily Telegraph, London, England, August 11, 2008, InfoTrac Newspapers – Gale; San Francisco Public Library, April 12, 2010.)

In answer to Sir David Tweedie’s question, “What is the alternative?”, Silicon Economics has developed EarningsPower Accounting™. EPA™ serves both sides of the current debate regarding fair-value accounting: For fair-value advocates, it fully embraces marking assets and liabilities to market; for fair-value opponents, it yields a recurring net income estimate with windfalls removed. Furthermore, it delivers improved accuracy over traditional revenue and expense (historic costing), and with significantly reduced net income volatility.

For decades, the prevailing thought has been that either the balance sheet or the income statement (P&L) could be accurate, valid, and useful - but not both. EPA solves this problem by using, what is called, the Ex Ante Equation™ which can be derived from the present-value formula. With EPA, you have it both ways.