2017: How will the new accounting rules affect Berkshire?

WARREN BUFFETT: And starting — I don’t even want to tell you about this one — but starting the first of next year, accounting is going to become sort of a nightmare in terms of Berkshire and other companies because they’re going to have us mark our equities to market just like we were a Wall Street trading firm or something.

And those changes in the value of Coca-Cola, or American Express, or everything, are going to run through the income account every quarter. In fact, they run through it every day in this theory, so that it really will get confusing.

Now, it’s our job to explain things so that you aren’t confused when we report GAAP earnings, but GAAP earnings, as reported, will become even more meaningless, if looking only at the bottom line, than they are now, and —

CHARLIE MUNGER: That was not necessarily a good idea.

WARREN BUFFETT: No, I think it’s a terrible idea, but we’ll deal with it. And we’ll — and, I mean, it’s my job to explain to what extent GAAP accounting is useful to you in evaluating Berkshire, and the times when it actually distorts things.

Accounting isn’t supposed to — it’s not supposed to describe value.

On the other hand, it’s a terribly useful tool, if understood, in order to estimate value if you’re analyzing businesses. And so, you know, certainly, you can’t blame the auditing profession for doing what they think is their job, which is not to present value. Although, by using these market values —

CHARLIE MUNGER: But you can blame the audit —

WARREN BUFFETT: What’s that?

CHARLIE MUNGER: You can blame the audit profession for that one.

WARREN BUFFETT: OK, well.

CHARLIE MUNGER: That was really stupid. (Laughter)

WARREN BUFFETT: Well, I agree with that actually. (Laughter)

But we will do our best to give you — we’re always going to give you the audited figures.

And then we’re going to explain their shortcomings in either direction and how they — how what you should use and what you probably should ignore in looking at those numbers and using them to come to a judgment as to the value of your holdings.

And I’ll explain it to you the same way I would explain it to my sisters or anybody else that — you know, we want you to understand what you own. And we try to cover the details that are really important in that respect.

I mean, there’s a million things you can talk about that are just of minor importance when you’re talking about a $400 billion market value.

But they’re the things that, if Charlie and I were talking about the company, that they’d be the figures or the interpretations or anything that we would regard as important in sort of coming to an estimate of the value of the business. But it’s going to be —

You can’t knock the media. I mean, they’ve only got a few paragraphs to describe the earnings at Berkshire every quarter. But if they simply look at bottom line numbers, what can be silly this year will become absolutely ludicrous next year because of the new rule that comes into effect for 2018.