Berkshire Hathaway 2017 Annual Meeting Audience Question # 48

There are a few things in accounting that Warren and Charlie “really disagree with”

Warren Buffett:

OK. Jonathan.

Jonathan Brandt:

Warren, in the past, you’ve enjoyed discussing accounting for options grants.

So I’m curious, what’s your view of the new accounting standard which mandates that companies report lower tax provisions, based on so-called excess tax benefits enjoyed when share-based compensation ends up being more profitable for the grantees than when it’s initially modeled?

These so-called benefits… excess benefits… used to go through the shareholder’s equity line on the balance sheet. Which accounting method makes more sense to you, the old method or the new?

Warren Buffett:

Jonny, I think you know a lot more about it than I do. So, if I were asked to answer that question, I’d probably call you up and say, “What should I say?”

It’s not a factor that will enter into Berkshire, so I really have not… I mean, I’ve heard just a little bit about that accounting standard. But I really don’t know anything about it.

Charlie?

Charlie Munger:

It’s not a big deal, Warren.

Warren Buffett:

Yeah. Well, I know that.

Yeah. We… there are few things in accounting we really disagree with and whether they might be material to somebody trying to evaluate Berkshire. And, you know, that primarily gets into amortization of intangibles.

It will certainly… it certainly gets into realized capital gains and that sort of thing. And we will go to great lengths to try to tell our partners, basically, not all of whom, you know, are accounting experts or anything.

And we will try to make clear to them, at least, what our view is. You know, the same way as if I had a family business and I was talking to my sisters or something about it.

But unless it’s material, we’ll probably stay away from trying to opine on any new accounting standards. If it’s material to Berkshire, we’ll go to great lengths to, at least, give our view.

Charlie?

Charlie Munger:

Well, I certainly agree with that.

Warren Buffett:

OK…

Charlie Munger:

That is, that what he’s talking about is not very material to Berkshire.

Warren Buffett:

No. It isn’t. And it really won’t be. You know, and…

Charlie Munger:

No.

Warren Buffett:

Some of these others are, though, and we will bring those up as they come up. The… yeah.

We are reporting 400-and-some million dollars less in our earnings than if Precision Castparts had remained a public company.

Well, is Precision Castparts… I mean, are the earnings less real? Is the cash less real? Is anything… because it’s moved, the ownership? I don’t think so.

And I want to convey that belief to shareholders. And they can debate whether it’s right or wrong. But I think it’s a mistake not to comment if… and just assume that the owners understand that because it, you know, it’s a fairly arcane point. And so, we point it out. But we also point out if we think depreciation is inadequate.

As for valuation purposes, the depreciation is inadequate at a very capital-intensive business like BNSF, which we, I must say, still love anyway.

Charlie, any more?

Charlie Munger:

No.

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Q&A with Warren Buffett and Charlie Munger: A Compilation of All Shareholder Questions and Answers from The Berkshire Hathaway Annual Shareholder Meetings

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