I’m just returning from a quick one day trip to Santa Clara to speak to the Silicon Valley Bank (SVB) administration group. The admin group gets together once a year at the bank for a training session. I was invited to bring a little financial intelligence to the team at the end of a two day conference. Lucky for me and them finance is a perfect topic right after lunch on the second day of a two day conference. The session was held at the Hyatt Hotel which is one block away from the new Levi Stadium where the 49’ers play and where the recent Super Bowl was played. Yes, I did get a chance to check out the stadium before my session. It’s impressive what a billion dollars gets for a stadium these days.
The session was interesting, the attendees were all of the admin for top executives at SVB. SVB is a very profitable mid-sized public bank. Since we only had an afternoon the focus was on the income statement and general finance concepts. The group was very interested in talking about the GAAP (generally accepted accounting principles) and non-GAAP reporting. SVB does non-GAAP reporting as does many of their clients based in Silicon Valley. They were also interested in getting comfortable with the jargon that was used in many meetings they would attend. Things like basis points and off-balance sheet assets were points of interest to the group.
The GAAP and non-GAAP discussion focused on the way that most businesses track their business financially. I like to say that most public businesses have three sets of books. Some like Enron had even more. 🙂
The three sets of financial statements or books are:
- The GAAP audited books reported publically. These financial reports are presented quarterly in forms filed with the SEC called a 10Q and annually in a report called the 10K
- The tax books. This version of the statements complies with the tax laws in the jurisdiction where the business is located. Accounting rules for taxes can be very different from GAAP. Therefore, every business has to produce a different set of books for taxes. In the United States these books follow the IRS tax code.
- Finally, most businesses have their own unaudited books used by management. The books are often called the managerial accounting books. If a business chooses to share their unaudited books publically in addition to the required GAAP reports, they are required to call those books non-GAAP. Because of the constant changes to GAAP and other one-time charges to statements many companies choose to report non-GAAP with their GAAP. This is very common for technology companies that SVB works with.
So there you have the book keeping breakdown. I will soon visit SVB again and will explain the off-balance sheet assets and basis points to a new group. These questions are common because they are a lot of what SVB leaders talk about. Since this blog is right at my promised word count for Kara our office manager, I will end the blog here. One final note, if you want pizza in Santa Clara County, the clear choice is Pizza My Heart.
If you want to learn more about the financial statements, sign up for our online training program.