The new dilemma of cash versus earnings. (the affect of the Federal Accounting Standards Board's proposed Overview of Post-Employment Benefits on reportable earnings)

Financial Executive, July, 1989 by Kelly, John F.

The Financial Accounting Standards Board's (FASB) draft Overview on Post-employment Benefits (OPEB) will affect the translation of cash flow into reportable earnings, a concept that reconciles the investment evaluation process of business with that of Wall Street. The FASB's Statement '87 and its OPEB project introduce the concept of "transitional amount", characterized as the "cumulative effects of a change in accounting principle" classification of expenses, making it possible to have an investment that increases earning per share over a period but that doesn't generate sufficient cash flows to meet cost-of-capital rates. The situation creates an environment where earnings are achieved without cash flow. The FASB transitional amount concept must be eliminated for it: unduly...

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