Re: [OPE-L] old books and new books

From: Fred Moseley (fmoseley@MTHOLYOKE.EDU)
Date: Tue May 30 2006 - 22:48:23 EDT

Hi Tony,

Thanks for your interesting post on corporate accounting tricks.

Do you have a rough idea of the extent of the debt that is kept
"off the books" by "special purpose vehicles"?

Also, do you know if this "off the books" debt is included in the
Fed's Flow of Funds estimates of corporate debt?

Thanks in advance for any additional information you can give us
about this important problem.


On Tue, 30 May 2006, tony tinker wrote:

> > *ENRON RIP?*
> >
> >             Let's take a moment's silence, to mourn over the corpse of the
> > Enron finale -- and ponder its accounting significance.
> >
> >             First, many colleagues have, over the years, pleaded with
> > progressive accountants to give them a clear answer to a simple question,
> > "How do we find the dead  bodies buried in financial statements?"  In
> > Enron, we see why there is not straightforward: Enron's accountants,
> > auditors and consultants (KPMG and Arthur Andersen) buried bodies elsewhere
> > (in Special Purpose Entities called SPE's).
> >
> >             Parking your problems elsewhere is a time--honored accounting
> > ruse, which falls with a family of disappearing tricks, variously referred
> > to "off-balance" accounting, two-sets of books, private slush funds, etc.
> > These are devices for 'disappearing' high-risk investments, heavy
> > borrowings, substantial losses, and slush fund payments in legal entities
> > "outside" of the financial statements of entities like Enron.  Hence, our
> > usual 'statistics of performance' for assessing firms like Enron are
> > rendered meaningless, because their financial statement have been
> > washed-clean of any trouble.  The practice has been blessed by the
> > accounting firm's trade-association institutions (the Financial Accounting
> > Standards Board, AICPA, etc) with the acquiescence of the SEC.  Insider
> > investors (Lay, Skilling, et. al) who knew the "real" condition of the firm,
> > not only had an "edge" over outside investors (who continued to be suckered
> > with the false information) but they could profit handsomely at the expense
> > of these victims, by continuing to balloon the deceit (with the full
> > authority of the "independent" auditing profession).
> >
> >             A couple of corollaries are likely to pass unacknowledged by
> > the media: First: the court rejected the defense that the defendants abided
> > by accounting rules (bolstered by the testimony of at least one academic
> > apologist, Professor Jerry Arnold from USC).  Indeed, the court's decision
> > showed that following the accounting firms "self-made" rules, was no defense
> > at all.  Academic apologists take note.
> >
> >             Second, Enron-like disappearing tricks are not new, and are
> > alive and well. The 1977 Foreign Corrupt Practices Act, was an attempt to
> > force the disclosure of hidden slush-funds used to bribe officials; bribes
> > that destabilized the governments of our trading partners (Japan,
> > Netherlands, Italy, etc).  Over time, the enforcement of this legislation
> > lapsed.

This archive was generated by hypermail 2.1.5 : Fri Jun 02 2006 - 00:00:04 EDT