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Building a better income statement – according to McKinsey


McKinsey have a nice web article which highlights the problems with GAAP reporting versus the needs of investors and analysts. The kernel of their article is that financial statements, with some small adjustments, could save investors a lot of re-working of figures. They provide the following example:

Image copyright McKinsey

Image copyright McKinsey

Two things come to my mind.  First, in my first real management accounting  job almost 20 years ago now, we prepared an income statement which was not too far away from the one on the right above. And, most management accounting courses would teach students to draw up some kind so similar profit statement – at least separating direct and indirect costs.

Second, the articles does not mention XBRL at all. With tagged data from GAAP financial statements, XBRL could re-draw financial statements in any format. I am not saying all XBRL tags are there to do what McKinsey suggest, but it is certainly possible technically.

You can read the full article at the link below. It is worth a read.

Building a better income statement | McKinsey & Company.

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About martinjquinn

I am an accounting academic, accountant and author based near Dublin, Ireland.

One response to “Building a better income statement – according to McKinsey”

  1. Eida Mickey says :

    Hi, I’m Norhidayah and I have several questions that I need to ask to a person who are expert in accounting. My questions are about GAAP and IFRS as below:
    1. Why there have differences in financial reporting using GAAP in different countries?
    2. Why there have differences in financial reporting between GAAP and IFRS?

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