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Opening the Books

By Susan Beck
December 31, 2015

The criminal fraud trial of three former executives of Dewey & LeBoeuf last year cast a spotlight on an arcane, often tedious but essential part of the operations of any big law firm: accounting practices.

After hearing hours and hours of testimony, jurors and observers alike were left in a fog of confusion about all the adjustments that the failed firm made to boost the income shown on its books. Jurors deadlocked on the most serious charges, while observers wondered if these financial maneuvers were legal, let alone appropriate.

The truth is that law firm accounting can be slippery, with gray areas that don't exist for most other big businesses. U.S. law firms benefit from an exception in the tax law that lets them use a different, more advantageous method of accounting than the standard method used by nearly every other big business. One of the benefits is that law firms can make adjustments that other businesses cannot do without running afoul of accounting rules.

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