It used to be said that the most creative people in Hollywood were the accountants, which accounted for the fact that, no matter how profitable a movie seemed to be,     there never seemed to be any “net profits”. Of course, this only mattered to stars who were foolish enough to accept deals that entitled them to a percentage of net (rather than gross) profits.

But if you happen to be a shareholder of Enron, or one of the numerous other companies coming under accounting scrutiny recently, you may take an increasing interest in the fact that the best fiction is coming from the guys and gals who used to wear the eye shades, and now seem to have an increasing interest in high-volume paper shredders.

(In case you haven’t been paying attention, here’s the way the system is supposed to work: Corporations report their financial results to analysts, investors, and the general pubic; accounting firms perform “audits” on corporate books to make sure that the results reported by the corporation accord with generally accepted accounting principles, known as GAAP.)

What’s going on? We talked to some lawyers and accountants experienced in the nooks and crannies of corporate accounting and asked for their take on the current rash of accounting “irregularities”. Here’s what they had to say:

  • Accounting irregularities are due to the fact that accounting firms that perform auditing work are under increasing pressure to make money, and are not willing to lose the business of corporate clients who insist on certain accounting “interpretations” that enable them to show better short-term profits.
  • A general decline in ethical standards among both auditing staff and corporate financial staff, coupled with the usual pressure to make money, leads to less resistance by auditors to corporate shenanigans.
  • Major accounting firms like Arthur Anderson package a large group of services to huge corporate clients. The unspoken agreement is that the corporation will pay high fees for the entire package in return for auditing standards that are “sympathetic” to the company’s short-term needs.
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0 thoughts on “FUNNY NUMBERS!

  1. Completely unjustifiable!!! But, like most cozy arrangements, both of the wealthy parties win and us poor workings saps lose!

  2. I went through my total 401k portfolio and ANY company that utilizes Arthur Andersen I sold that stock. We as Americans CAN make a difference and send a message to ALL the accountants and their scams…What Goes Around Comes Around.

  3. Corrupt Greed from the Top down. The new trickle down economics that make the high level executives rich, but rob the rest of us.

  4. The reason for these problems is very simple. It is the general dishonesty that is practiced and tolerated by the public. Honesty used to be a valued characteristic. Look at what the public accepted in Clinton.

  5. The growing trend away from moral absolutes leads to total bankruptcy as evidenced by the Enron fiasco. Don’t think for a minute that this is THE result – it’s only an indicator of what we are in store for. . .

  6. I went through my 401k this morning, and sold all of my Enron stock, and judiciously replaced it with K-Mart!

  7. One of the fundemental princapals of a free market economy is based on trust and truthfulness. When that is gone, so will be the long term economic growth that we as Americans have enjoyed for so long.

  8. a system is equal to its components…look at the soviet union (ex) as long as it isin the hands of humans, it will be human;corruptable but who else??? but humans. What we need is at least at the education level to try to teach some ethics, go see what is being taught in our institutions.

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