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Hidden Financial Risk
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When I graduated with a doctorate in 1977, I researched and published articles on main- stream topics, particularly current value accounting and the interaction between earnings and cash flows. After a while, it occurred to me that these are not the crucial issues of financial accounting and reporting. Ethics and honesty and fairness to financial statement users comprise the foundational issues of the profession. If a business enterprise adopted the best methods for accounting but did so with treachery and duplicity, it would not help any capital market agent. If I have to choose between the best account- ing methods and managerial integrity, I always prefer the latter.
I started writing articles on such topics in the 1980s and published them in obscure academic journals. Then in January 1996 I began writing the “Spirit of Accounting” column for Accounting Today with my friend Paul Miller. I needed a break in 2000, so I quit the column; Paul Bahnson joined Paul Miller on it. After a year’s respite, I found myself writing “Accounting Annotations” for Accounting Today and “The Accounting Cycle: Wash, Rinse, and Spin” for SmartPros.com.
Then Enron disclosed problems in its third-quarter report of 2001 and soon declared bankruptcy. All of a sudden people were interested in accounting at levels I had never experienced previously. During the first half of 2002 I had at least 500 interviews with the media, and I discussed at length issues about Enron, Global Crossing, WorldCom, Tyco, Adelphia, and Arthur Andersen. My main message was simple: The culture of financial reporting that began around 1990 brought about this mess. When managers engage in “earnings management,” what they really mean is that when they cannot make profits legitimately, they will exaggerate and abuse accounting numbers until the reported numbers make them look good. Aiding and abetting this process of “earnings management” have been board directors who never asked serious questions, corporate lawyers who were eager to push the limits, stock brokers and investment bankers who did not care how they made a buck, financial analysts who worried little that they served as used-car salesmen for their investment banking firms, auditors who looked the other way, an impotent Financial Accounting Standards Board, an overextended Securities and Exchange Commission, and members of Congress who would tolerate almost any- thing for sufficiently large campaign contributions.
J. Edward Ketz - Personal Name
1st Edtion
0-471-43376-4
NONE
Hidden Financial Risk
Accounting
English
John Wiley & Sons, Inc
2003
USA
1-313
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