Can I have a bottle of dork with that?

Sometimes I amuse myself. I may be the only one who understands my idiosyncratic humor, but some people actually do hear one hand clapping. Take my classmate, for example. He is a finance guru at a large financial institution. I have offered my help to tutor my classmates in accounting and told him over the phone this session would be too elementary for him. Yet, he decides to be a smartass. So I respond. Funny or not funny? You decide. Here is our email exchange. Names have been changed to protect the not-so-innocent.

________________________________

From: Accounting Rebel (me)
Sent: Fri 8/3/2007 12:02 PM
To: XXXXX
Subject: Reminder about accounting review session



Hola, class!
This is just a friendly reminder that the accounting review session I'll be hosting will take place this Sunday at 7pm eastern. I've only had three questions sent in so far, so please send me more! I'll accept questions in problem format until midnight tomorrow. Basically I've structured this as a review of fundamentals: what's debited versus credited, how the matching principle works, how timing affects cash flows, etc. If you have a pretty solid grasp of all the material, this is probably going to be too elementary for you.

Please make sure you don't ask me something that's too close to an exam problem. If you do, however, I'll change it significantly enough it can't be directly applied. If you understand the theoretical principle behind my example, then you should be able to complete the exam problem accordingly.

I have no idea where skill sets lie, so if you could forward me questions about well...pretty much anything....I'll have a better idea of how to frame the presentation without assuming too much or too little.

Thanks much, gang. See some of you on Sunday.


----Original Message-----
From: Banking Mastermind
Sent: Fri 8/3/2007 5:07 PM
To: Accounting Rebel
Subject: RE: Reminder about accounting review session

Can you please help explain the GAAP accounting for the derivative associated with a base metals commodities hedge assuming the price of lead (that you are holding in physical inventory) has increased dramatically over the last 90 days....

Just kidding. Hope you are well.

--Banking Mastermind

________________________________

My response:

You crack me up. Seriously.
I mean, c'mon. You know physical commodities inventory is valued at the lower of cost or market value. Didn't anyone tell you lead is soooooooooooooooooo 2004??? How passe that you would still own this in your physical inventory. Uranium is the way to go these days--sheesh! Anyway, I'm sure you're aware the price risk is mitigated through the use of derivatives. This price risk mitigation does not generally qualify for hedge accounting under GAAP. So no hanky-panky stuff. In such situations, unrealized gains in inventory are not recognized under GAAP, but unrealized gains and losses in related derivative positions ARE recognized under GAAP. As a result, the company's reported commodities trading earnings are subject to volatility. I'm sure that keeps you awake at night. Or at least it should. Just the suggestion of "volatility" anywhere is enough to make me shake in my britches like Ebeneezer Scrooge at a United Way meeting. Pass me the small cap international any day......

The bigger and more important question remains: Why am I still at WORK? Ack....time to jet.



Later I chided him for bringing up a FASB statement that was issued after I had finished my undergrad schooling. I don't have to go to all that CPE since I'm not in public accounting, so I'm about 10 years behind on some of the FASB and SFAS statements (not good ole GASB, though--I'm up-to-date on all my governmental accounting shizznit). Have any of you been to those sessions? One word: Snoresville.

Anyway, I sent him a link to FASB 133 just to be a smartass back. That'll learn 'im.