Be interesting if companies had to include two independently produced profit and loss statements!

Honestly, I don’t believe I’m sensationalizing GAAP. (Though clearly the diagram was intended to be tongue-in-cheek.) To me, the issues that arise as a result of differences in accounting methods cannot always be discounted as immaterial.

In my opinion (which you’re welcome to disagree with) the flexibility within GAAP makes the comparative value of financial statements between two companies to be practically nil. Even if we consider two companies within the same industry, it’s almost certain that there will be significant differences in accounting methods. I’ve heard some people make the case that the differences are likely to cancel out in the aggregate. But isn’t it just as possible that, when aggregated, the differences become even larger?

I think your statement that “The general public needs to understand that financial statements are not 100% accurate, but they also do not propose to be.” is really the heart of the matter. While people involved in the creation of financial statements understand that they’re not 100% precise, I suspect many would-be investors aren’t aware of that fact.

I think the general public needs to understand that financial statements are not 100% accurate, but they also do not propose to be.

I know your post makes for interesting reading, but I wouldn’t sensationalize G.A.A.P. just for the sake of a good post . . .

People often point to Buffett as the world’s greatest stock picker. Buffett certainly reads financial statements. But he also certainly does not stop there. Reading financial statements is perhaps one-third of what is involved in picking stocks effectively, in my assessment.

Rob