California to students: you may not be able to read, write, add and subtract; but you will be able to separate the bottles from the cans and blame the weather on global warming!
STEP ONE: CASTRO STEPS DOWN

FASB: ACCOUNTING FOR FAILURE -- HIDING THE OBVIOUS?

In an Orwellian world, where white is black, up is down, freedom is tyranny, the poobahs of accounting are redefining a new concept: transparency.

Who?   The Financial Accounting Standards Board

According to Wikipedia...

"The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States in the public's interest.

The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S.

It was created in 1973, replacing the Accounting Principles Board and the Committee on Accounting Procedure of the American Institute of Certified Public Accountants.

Their mission...

"The FASB's mission is 'to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information.'"

These are  people who brought us arcane corporate accounting methodologies that enabled financial institutions to the create exotic financial instruments known as derivatives and to sell them to other financial institutions in such a manner as to keep the impact of these illiquid and almost unmarketable off corporate balance sheets. Thus they allowed corporations to accumulate tremendous amounts of risk with very little transparency until the entire structure came crashing down on the United States economy -- requiring massive capital infusion by the government to prevent banks from becoming insolvent. 

One need only read the summary of the FASB-promoted rule FAS-140 dealing with SPEs (Special Purpose Entities) which kept all the dirty little financial secrets off the parent entity's balance sheet to understand what these people are all about.

Is there a hidden agenda?

Like all professional societies, accountants have every reason from preventing their slide into irrelevancy in today's automated world by compounding abstract and almost incomprehensible rules which require a "licensed" professional to render an "opinion" on the "adequacy of the financial controls" used to produce reports for professional and public consumption.

And where is the accountability for the accounting?

So why are the professional accounting entities NOT  being charged as being an accessory to fraud for all of the accounting obfuscation that led to the subprime mortgage debacle? Almost everyone of these big corporations used a major "public accounting" corporation to sprinkle "holy water" on their financial statements; most of which were almost publishable works of fiction, where subtleties disguised worthless assets and created artificial value where there was none.

And now those who oversee the accounting industry want to turn the accounting world topsy-turvy with new accounting standards which they claim will result in more transparency in financial statements....

The seven year project...

Sometime in the near future, FASB will be releasing their latest abomination, the draft standards for financial statement preparation and display. In process for 7 years, the result is the ultimate "committee" decision. With proponents and opponents destined to fight over the niggling details.

The devil is in the details...

Instead of presenting the familiar balance sheet and income statement, there will be radically new and expanded reports. One item, over which I have a great deal of concern, is the elimination of the "net income" line item. Other items of concern relate to "business segment reporting" which may require a diverse organization like General Electric to report on each business unit and thus producing reams of data which need to be analyzed prior to consolidation. While investors would be rewarded with a plethora of new material upon which to base analysis and commentary, certain competitive advantages may be unduly disclosed. Foreign industrial espionage would become immeasurably easier as one could track the under-performing units to gain an operational advantage. There is no doubt that the trademarked "Accounting Standards Codification" project is immense, complex and has the possibility to further obfuscate corporate accounting.

But in spite of the past efforts of hundreds of individuals the question remains, will anyone have the cojones to declare the overall project a disaster?

The out?

While these proposed accounting measures affect primarily large organizations and private organizations may be somewhat exempt, it should be noted that a liberal interpretation of FAS 131 may allow companies to avoid reporting anything that is not used internally

Is accounting becoming a joke?

There is an old joke that has a chief financial officer interviewing major public accounting firms for a lucrative audit project.

He goes down the line of assembled representatives asking them to whisper the answer to a questions in his ear.

The question: what is two plus two.

As he proceeds down the line, he keeps shaking his head until he picks the accounting firm that will get his firm's business.

A subordinate, confused by the process, asks his boss, "Everybody knows that the answer to two plus two is four. So how did you pick the winner?"

Simple, I continued down the line until I received the right answer. "Right Answer?, replied the subordinate.

"Yes, it was the fourth answer I received."

"What did he say that was different from everybody else?"

"He asked me 'What do you need for performance?'"

Believe me, when it is YOUR money and retirement at stake, this is no laughing matter.

What can YOU do?

Resolve never to return to the days of ENRON-style accounting.

As a corporate officer, ask your accountant if these changes will mean a major disruption in your accounting procedures. But be careful when asking a professional earning billable hours to espouse on a hypothetical?

As an investor, ask your investment adviser what these changes are likely to mean in terms of self-education and the ability to manage your own investments?

And as members of the public, do we want to give corporations the ability to further slice and dice the numbers into further obscurity?

For those who want to learn the extent of the proposed changes, please visit the FASB site.

Bottom line, if there continues to be such a thing, beware of the accounting industry's further complication and obfuscation of such items as net income, earnings, etc. 

-- steve

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