It is a profession allegedly built on openness and transparency, but it appears that those who set the standards for accounting practice are taking a cue from lawyers by making accounting issues so complex that they demand professional assistance to assure both compliance with the myriad of changing regulations and to provide a “good faith” pass if wrongdoing is discovered.

Tell me why …

Almost every major corporation involved in a major fraud has world-class auditors and lawyers signing-off on their work. And rarely are they sanctioned. Even Enron’s Arthur Andersen – which most people believed disappeared in bankruptcy and dissolution – exists as four trusts: Omega Management I – Omega Management IV.

“As of 2010, Arthur Andersen LLP has not been formally dissolved nor has it declared bankruptcy. Ownership of the partnership has been ceded to four limited liability corporations named Omega Management I through IV.” <Source>

And it appears that the regulatory agencies give accounting firms a pass if they cooperate with the prosecution of their clients. Allowing the company to avoid criminal sanctions on its executives and enter a settlement which yields so-called “record fines” without the necessity of admitting nor denying the allegations. A move which keeps those pursuing civil damages from using a conviction and the government’s evidence against the firm.

Hidden in plain sight; if you knew where to look …

The accounting profession gave corporations the ability to hide assets and/or mounting debts from the public, counterparties and the regulatory agencies by enabling a series of rulings that allowed for “off balance sheet” accounting through special purpose vehicles, special purpose entities and various other accounting fictions.

If a financial institution wanted to disguise non-performing or other problematical assets, enter the accounting profession with their “105” strategy.

The financial institution wishing to hide or reduce their balance sheet assets would enter a transaction with another company to borrow money in exchange for the assets – for a suitable fee, of course. A side agreement to repurchase these very same assets shortly after the quarterly books were closed would also be executed. If normal accounting rules applied – both companies would book the transaction as a “loan.” However, the accounting profession put forth a rule that essentially said that if the company provided 105 cents-on-the-dollar as collateral, the “loan” could be booked as a sale. Now the fiction was complete. The balance sheet looked healthier because it showed that assets were “sold” – never-you-mind that they would reappear shortly. This is symptomatic of the organized dishonesty within the top tiers of the profession.

This led to one of the proximate causes of the current financial meltdown …

Highly-leveraged assets bought with borrowed money remained off the balance sheets of the parent financial institutions where the public, counterparties and regulatory agencies were somewhat blinded to the growing risk. In many cases the risk posed by these transactions exceeded the entire net worth of the firm and a market downturn could render the firm technically insolvent.

It got so bad that financial institutions could no longer assess the net worth of other financial institutions and would no longer trade with their normal and customary counterparties. This led to a retention of cash and a cessation of lending and other normal business activities. A liquidity crisis brought about by a lack of faith in the companies transacting business. And, as we have all seen, the federal government and the non-governmental Federal Reserve rushed to pump more money and liquidity into the system. A move that is destined to have severe and far-reaching consequences (such as inflation) in the future.

Another of the accounting profession’s misadventures was “mark-to-market” accounting which forced financial institutions to re-value assets to current market prices. This was disastrous for long-term investments which had relatively little value in the early stages of their lives, but would mature into profitable investments as these investments aged. However, this rule, when applied in a market downturn, turns into a death spiral of declining prices and impaired balance sheets. Value is erased from balance sheets in a tsunami of accounting activity – with little or nothing affecting any residual value of the actual investment.

Here we go again …

Realizing the damage they have done with “mark-to-market” accounting, the profession decided to revise its rules to benefit its suffering clients. They instituted “mark-to-magic” rules which allowed big financial institutions to declare that they had some “real” basis for re-valuing their investments. Poof! Overnight, financial institutions who were underwater and drowning in debt reduced their obligations, some actually showing a paper profit for the quarter. Of course, the reality of the situation is that nothing really changed except the accounting rules and the financial institution’s willingness to mislead the public into believing that they were healthier than they really were.

The ultimate deception …

Not satisfied with the havoc they have wrought, the accounting profession is, once again, attempting to provide cover to financial institutions which should have entered bankruptcy long ago. This time the fiction is the adoption of so-called “international” accounting standards which are partially based on rules which are much less stringent that our current system and whose adoption may prevent anyone, including skilled accounting professionals, from making legitimate comparisons with older accounting data from earlier times. Thus making the detection of fraud and malfeasance that much harder. A happy coincidence for those large financial firms which plagued America and almost ruined her economy? I think not.

Bottom line …

It appears that our country is being led by those who are inspired by Marxist ideologies. And those financial institutions which have plundered the American treasury and stolen much from American citizens are actively supporting this corrupt regime … in return for a pass against prosecution, the least of which demands that nobody may be able to clearly see what was done in the past. All aided and abetted by the lawyers and accountants who are manipulating the system for their patrons: the wealthy, the powerful and the politicians.

As an American citizen you should demand answers from your politicians why the Financial Accounting Standards Board is overly complicating accounting rules and giving a pass to their fellow-practitioners who should be in jail for aiding and abetting fraud on a massive scale.

-- steve

It appears that the entire U.S. accounting system is being driven by a few multi-nationals who want to have their international accounting system be accepted by the United States without reconciling the accounting to more stringent U.S. standards. A move welcomed by the Marxists who want to “internationalize” accounting, law and governance of nations.

Reference links …

 Financial Accounting Standards Board

Accounting standards or mis-accounting standards?

Slaying the Structured Investment Vehicle Monster with the double-edged sword of transparency

THE FED: MOVING FROM MARCH MADNESS TO APRIL FOOLISHNESS