Full Employment for Consultants Act
Corporate governance consulting mushroomed after last year's outbreak of accounting scandals led to a crackdown on executive behavior, but experts now question the need for such a cottage industry.
Every time Congress passes new accounting regulations, accountants and consultants make more money. Why? Because, in the interest of making things more transparent to the investor, Congress passes laws that are harder and harder to comply with. One day Congress will decide to pass the law that will truly make things more transparent to investors, but will be easy to comply with - No more off-balance-sheet financing. No off-balance-sheet financing would have equaled no Enron tactics. All those partnerships were nothing more than a way to keep financing off Enron's balance sheet. Had there been no such thing, Enron's true level of debt would have been readily apparent to investors, and the company would have gone bankrupt without the accompanying ugly mess.
In the meantime, however, accountants (other than Arthur Andersen) and consultants thank Congress for making sure companies keep their pockets well-lined with fees.
Comments
I think there is more to it than just dis-allowing the off balance sheet transactions,
Accounting for liabilities, warranties as an example, is an estimate. I don't really see where the rules require a regular reporting of the realized profit/loss when they deviate from the stated estimates which were used to determine the stated profit.
Some companies state R&D as an expense purposefully understating current profit, when R&D can otherwise be stated as equity, if all R&D is reported as equity investment current profits would be overstated, is there a way to accuratly state things like that? Is there a a hard and fast rule that would work, or would it be industry or company experience that should drive the manner in which things like R&D or warranty liability are accounted?
Posted by: Justin | July 30, 2003 07:45 PM