From: tony tinker (tony.tinker@GMAIL.COM)
Date: Tue May 30 2006 - 10:34:21 EDT
> > > *ENRON RIP?* > > > > Let's take a moment's silence, to mourn over the corpse of the > Enron finale -- and ponder its accounting significance. > > > > First, many colleagues have, over the years, pleaded with > progressive accountants to give them a clear answer to a simple question, > "How do we find the dead bodies buried in financial statements?" In > Enron, we see why there is not straightforward: Enron's accountants, > auditors and consultants (KPMG and Arthur Andersen) buried bodies elsewhere > (in Special Purpose Entities called SPE's). > > > > Parking your problems elsewhere is a time--honored accounting > ruse, which falls with a family of disappearing tricks, variously referred > to "off-balance" accounting, two-sets of books, private slush funds, etc. > These are devices for 'disappearing' high-risk investments, heavy > borrowings, substantial losses, and slush fund payments in legal entities > "outside" of the financial statements of entities like Enron. Hence, our > usual 'statistics of performance' for assessing firms like Enron are > rendered meaningless, because their financial statement have been > washed-clean of any trouble. The practice has been blessed by the > accounting firm's trade-association institutions (the Financial Accounting > Standards Board, AICPA, etc) with the acquiescence of the SEC. Insider > investors (Lay, Skilling, et. al) who knew the "real" condition of the firm, > not only had an "edge" over outside investors (who continued to be suckered > with the false information) but they could profit handsomely at the expense > of these victims, by continuing to balloon the deceit (with the full > authority of the "independent" auditing profession). > > > > A couple of corollaries are likely to pass unacknowledged by > the media: First: the court rejected the defense that the defendants abided > by accounting rules (bolstered by the testimony of at least one academic > apologist, Professor Jerry Arnold from USC). Indeed, the court's decision > showed that following the accounting firms "self-made" rules, was no defense > at all. Academic apologists take note. > > > > Second, Enron-like disappearing tricks are not new, and are > alive and well. The 1977 Foreign Corrupt Practices Act, was an attempt to > force the disclosure of hidden slush-funds used to bribe officials; bribes > that destabilized the governments of our trading partners (Japan, > Netherlands, Italy, etc). Over time, the enforcement of this legislation > lapsed. > > > > Off-balance sheet practices are pervasive today: the Federal > Government uses them to understate the federal deficit (social security for > instance). Even colleges like my own Baruch College, funded by tax-levied > monies, are on the game. For instance, Baruch (a CUNY entity) uses a > privately registered entity, Baruch College Fund, to supersize the > salaries of select faculty. Baruch's own SPE takes removes the college from > the Freedom of Information Act requirements. It is more difficult to > obtain salary information from this public institution than tapes from a > Nixon Whitehouse. > > > > > > Professor Tony Tinker > Co-Editor: Critical Perspectives on Accounting > Co-Editor: The Accounting Forum > Fellow of the Association of Chartered Certified Accountants > Baruch College at the City University of New York > Box B:12:236 > One Baruch Way > New York, NY 10010-5585 > USA > Email: Tony_Tinker@baruch.cuny.edu > Tel: 646 312 3175 > Fax: 646 312 3161 > CPA 2005 Conference: > http://aux.zicklin.baruch.cuny.edu/cpa2005/ > Editorial Office: > http://www.baruch.cuny.edu/research/editorial_offices.htm > Blog on Baruch College: > http://evaluatingbaruchcollege.blogspot.com/ >
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