The first and most obvious category of essays has been the critiques of corporate accounting.  From time to time people have asked how I get ideas for my columns, and I respond that corporate managers make it easy because they so often do and say the darndest things.  Over the years I have censured the accounting by executives at Ahold, AOL, Biovail, Broadcom, Citigroup, Computer Associates, Delphi, EDS, Fannie Mae, Freddie Mac, GE, General Mills, General Motors, HealthSouth, Lucent, Medco, Refco, RSA Security, Tyco, and United Health Group.  As long as managers act in self-aggrandizing ways, I shall have fodder for dozens more columns.

Another obvious theme in my columns is a look at the accounting topics under review by the FASB or the SEC or topics that are showing dysfunctionality by the actions of managers.  Such topics have included goodwill, derivatives, pensions, leases, and contingent convertibles.

On a more basic level, these columns also have delved into the process of creating accounting standards, especially with respect to the debate on rules-based versus principles-based accounting.  I find it telling that nobody has answered my challenge to differentiate rules from principles.  If nobody can distinguish between rules and standards, what is this debate about?

I also find it ludicrous for so many practitioners to claim the superiority of IFRS over U.S. standards.  Such individuals should read and compare (say) lease accounting under these two systems.  If they undertake this simple exercise, they will see that there is little difference.  What difference does exist—the so-called bright line of the 90 percent test—if removed will lead to greater manipulation of financial results.  As I have said in many columns, principles-based accounting is superior to rules if and only if these so-called accounting principles are implemented by principled managers.  As too many managers don’t exhibit principles as evidenced in their financial reports, I shall continue to believe U.S. rules-based standards are superior to principles-based ambiguities.

The lack of a sufficient number of principled managers leads to a third theme—the leadership crisis in the profession, in business, and in government, a crisis that continues to exist.  I pointed out the shortcomings of SEC chairmen Pitt and Cox and the palpable deficiencies of Arthur Andersen auditors.  The attempt by Arthur Andersen to cover up the fraud at Waste Management by amortizing the fraudulent income statement effects over a ten-year period remains the most mind-boggling and unethical proposal by a CPA.

However, there are some bright spots.  I wrote about John Biggs, former CEO of TIAA-CREF, and his valiant efforts to improve corporate accounting.  I also wrote about Art Wyatt, a former partner at Arthur Andersen and a former FASB member, and his efforts to improve financial reporting standards and professional auditing.  I only wish there were more individuals of such high caliber.

A related fourth theme centers on the interference by Congress.  I have castigated Representatives Eshoo, Perlmutter, and Lucas and Senator Enzi because they all wanted to undermine accounting truth to support corporate managers and directors.  These members of Congress have ignored the fact that introducing accounting lies to save corporate balance sheets will erode investor trust in financial reports and send capital elsewhere.  Short-term gains from accounting exaggerations will incur long-term damages that would set back enormously the U.S. economy.

Sarbanes-Oxley is an example of deceptive law-making for purposes of pretending that Congress is advancing the common welfare.  In reality the act provides virtually no benefit to investors but imposes a huge cost merely to create the appearance that Congress has fixed the things that caused Enron and WorldCom.  If Sarbanes-Oxley really addressed accounting fraud, why are shenanigans still occurring at Fannie Mae, Freddie Mac, AIG, GE, and virtually every firm in the banking industry?  I hope the Supreme Court nullifies Sarbanes-Oxley so we might have an honest debate on what it will take to generate more credible financial statements.

A fifth theme focused on business ethics.  While many find it fashionable to talk about ethics, I am skeptical because we all have ethical failings and indeed this society has been, as one author termed it, a “cheating culture.”  Many of us do not admit our own greed and deception and similar lapses; instead, we engage in the blame game.  We point the finger at those who get caught, ignoring the indiscretions of others as well as hiding our own slips. 

Moreover, so much of the discourse about ethics is hypocritical as it is delivered to garner an aura of public opinion without amending one’s behavior.  For example, Franklin Raines, former CEO of Fannie Mae, helped create an institute for corporate ethics at the University of Virginia.  Though he received much good publicity from this benevolence, it did not stop him and his colleagues at Fannie Mae from committing a $9 billion accounting fraud.  I can do without such ethics!

The University of Virginia should have returned the money, but it did not.  Indeed, corporate America has provided so many funds to universities that too many professors are in bed with corporate miscreants.  In turn, faculty members write papers to support the views of corporate executives, such as rationalizing stock options.  Many faculty members were incredibly quiet when the Enron debacle first hit; most made no public comments until the nails were in the coffin.  Even then, Arthur Andersen professors either said nothing or defended the auditor.

Far superior would be a review of institutions, organizations, and laws in an attempt to reduce this thievery, and a number of columns comprise this sixth theme.  We need to outlaw stock options because they supply incentives to managers to cheat and tempt them to maximize their wealth by concocting outrageous accounting schemes.  We also need to rein in the deceptions of credit rating agencies by outlawing their receiving funds from those they rate.  Empirical evidence suggests that the agencies were selling the ratings and managers complied by paying for a desired rating.

We also need the SEC to enforce the rules and quit enabling frauds by not fining and not bringing criminal actions against corporate mongrels.  We need the SEC to empower the owners by allowing them to vote their beliefs at shareholder meetings instead of allowing managers to act like communist bureaucrats.  Shareholders are the owners of these firms and it seems so obvious that they have a right to voice their opinions at these meetings and vote on important strategic decisions.

What is in store for the future?  As I have no prophetic powers, I won’t venture too far in these unknown lands except to say that I remain doubtful of major improvements in financial reporting.  Too much money and too much power are invested in the hands of those who view the corporation as their personal piggy bank to make huge changes.  But we can still try to improve the world, including financial statements.  Even with the odds against us, those who value financial honesty and integrity need to fight the good fight.

In the meantime, I urge investors to increase their skepticism and cynicism.  With your guard up, take a closer look at corporate accounting because breadcrumbs can often be found within the footnotes and in news outside of financial reports.  Perhaps consider investing in assets other than stocks and bonds as corporate insiders have a tremendous information asymmetry that they will exploit to your disadvantage.  Watch short sellers and pay attention to those investment advisers who are very good in accounting analysis.  Obtaining their advice might save one from great financial loss.

Finally, if you discover a manager employing accounting shenanigans, use the courts to advance your cause.  Don’t wait for the SEC or others because they have their own agenda (or should I say inertia?).  By bringing suit against whoever stands in the way of truth and integrity, you will hurt managers in the only thing that matters to them.  Hopefully it will also have a positive effect on those watching the case.

I have enjoyed opining on accounting matters.  I don’t know how many more years I shall write, but I know that I shall enjoy the editorializing.  With today’s managers, there will always be room for comments.