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FASB Isn't to Blame
I am an accounting student who is five credits from a bachelor's in accounting. I would like to follow in Mr. McNelay's footsteps and attain a MBA from Stanford. I would not, however like to agree with the statement he made: "What we need to do is move away from the FASB world and move back to cash accounting."
Big business has wanted to nationalize the accounting industry for some time (many, many years). The accounting industry has ardently resisted. The outcome of this struggle is that the FASB has been forced to compromise when issuing pronouncements on controversial accounting issues. The FASB has historically issued pronouncements which Congress will not overturn. This usually means accounting fundamentals are not always followed as they theoretically should be. Accrual accounting is a mechanism accountants use to "protect the absent owner". I would think this would be more preferable to investors than cash basis financial statements, which could omit from the financial statements any transaction in which cash hasn't changed hands.
Mr. McNealy needs to realize that it is business men such as himself who are to blame for the present complexity of corporate financial statements, not the FASB.
-- B. Hamilton
A letter to the Big Board
September 29, 2003
Board of Directors
New York Stock Exchange
11 Wall Street
New York, NY 10005
Gentlemen:
You have chosen former Citigroup Chairman and CEO John Reed as interim Chairman of the Board of the NYSE. Mr. Reed has stated that he would make corporate governance a priority, a laudable goal.
Perhaps you are unaware that the Enron Bankruptcy Examiner in his Third Interim Report concludes (pp. 32-33) regarding Citigroup, JP Morgan Chase, Barclays Bank, B/T Deutsche, Canadian Imperial Bank of Commerce that:
"There is evidence from which a factfinder could conclude that certain Financial Institutions, assisting Enron officers:
(i) participated in or aware of side agreements or undisclosed understandings that they knew would invalidate Enron’s desired accounting treatment if known by Andersen;
(ii) participated in or were aware of misrepresentation of facts to Andersen that they knew would have invalidated Enron’s desired accounting treatment if known by Andersen;
(iii) participated in or were aware of specific aspects of the SPE transaction that they knew would invalidate Enron’s desired accounting treatment if known by Andersen;
(iv) knew, based upon their own independent analysis, that Enron’s desired accounting treatment was improper; or
(v) knew that Enron’s disclosure of the SPE transaction in which they participated was materially misleading to third-party creditors, investors and other users of Enron’s financial statements, regardless of technical compliance with GAAP.
Consequently, the Bankruptcy Examiner concluded that each of these financial institutions “aided and abetted” Enron officers in their fraud.
Mr. Reed was Chairman and CEO of Citicorp from 1984 until 1998 and was Chairman and co-CEO of Citigroup from 1998 until April, 2000. It was during his tenure as CEO that Citigroup entered into the following transactions with Enron:
NIGHTHAWK/$500 million minority interest financing (closed 12/29/97),
RAWHIDE/$750 million minority interest financing (closed 12/18/98),
ROOSEVELT/$500 million prepay transaction (closed 12/30/98),
TRUMAN/$250 million prepay transaction (closed 6/29/99),
JETHRO/$337.5 million prepay transaction (closed 9/29/99),
YOSEMITE I Prepay/$800 million (closed 11/18/99),
NIXON/$104 million prepay transaction (closed 12/15/99),
NAHANNI/$500 million minority interest financing (closed 12/29/99) and
YOSEMITE II/$331.8 million prepay transaction (closed 2/23/00).
Whether or not Mr. Reed was personally complicit in his bank’s decision to defraud Enron shareholders by first defrauding Andersen, his tenure is a glaring failure in corporate governance.
Sincerely,
Mary Ashby Morrison
Cc: SEC Chairman William H. Donaldson
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