Manipulation of law firm financial statements using the modified cash basis of accounting is commonplace, indeed standard operating procedure. That doesn't have to be a bad thing, when self discipline and genuine efforts to accurately reflect financial performance are guiding principles. Be aware of the differences between cash and GAAP accrual accounting, and what is done in your firm when compiling "financial statements". When put to a bad purpose, however, the modified cash basis of accounting can overstate results, hide problems, and contribute to the sudden and seemingly unpredictable collapse of even large and elite law firm practices. This is a four part series that outlines in summary fashion how it happens, and how to watch out for it. (Republished with permission of the Daily Journal Corp. (2011)
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