You would expect that the people paid by multinational finance giants to know how much money they have would have seen this international financial disaster coming, right?
Apparently, these people live in the best of both worlds. They get paid to see how much money there is, and they get paid to make it look like the money ain't really there.
Leo Bloom is the accountant of Corporate America's dreams, and the world's worst nightmares.
This is fraud, and the worst kind. These practices have directly lead to the clusterfuck on Wall St and around the world. Our modern accounting and auditing system makes Arthur Anderson look like a register clerk who gave you the wrong change.
To see exactly how screwed up on purpose this is, go below the fold.
The creative accounting that has lead to where we are today in the world of financial alchemy is considered all part of General Accepted Accounting Principals (GAAP). Why? Because the laws say so. We used to have accounting which lead to accountability. Now we have nothing but Arthur Anderson's in accountants clothing.
When Citibank or some other TBTF POS Corporation wants to release their financial statements or some other document, they are expected to use a certified accountant. They will then hire on one of the Big Four accounting firms, such as PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, KPMG or some other such entity to service their account. Here is the first flaw. Re-read this paragraph to let it sink in before following down the story.
Q. If the Corporation who needs auditing is the same Corporation who is paying the auditor, what guarantees that the audit is honest?
A. Not a damned thing.
If anything, the Accounting firms have zero incentive to stick strictly to the rules, and every incentive to play it as fast and loose as possible. Even then, the rules are so loose you could run a speakeasy lout of them. The logic is just obvious when you look at it this way. Why would PricewaterhouseCoopers give a company like Bear Stearns or GM an audit that shows that money has been lost when Bear Stearns can just hire someone else who says different? Why would PricewaterhouseCoopers even risk losing a huge multi-billion dollar client? Why rock the boat?
No one rocked the boat for so long, we now find ourselves going down with the ship.
Many of us remember the scandal early in the Bush Jr Administration that brought down Enron, Adelphi and other
criminal business enterprises. One of the Corporations that would never survive that scandal was the accounting firm Arthur Anderson.
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations. In 2002, the firm voluntarily surrendered its licenses to practice as Certified Public Accountants in the United States after being found guilty of criminal charges relating to the firm's handling of the auditing of Enron, the energy corporation, resulting in the loss of 85,000 jobs. Although the verdict was subsequently overturned by the Supreme Court of the United States, it has not returned as a viable business.
If you have read Arriana Huffington's book "Pigs At The Trough", or other such books detailing the disaster known as modern accounting principals, you will know more about what I am talking about. The industry of creative accounting is much more to blame for the position we are in globally and here in America than a mere credit crunch or liquidity issues. How can you guard the hen house when the fox has paid the hound to count creatively. Either 2 + 2 = 4 or someone is bullshiting someone else. I know I can smell it by now, but am I entirely alone on this?
Well, guess what
The Pigs Are Still Feeding From The Trough
I picked up the LA Times business section this morning and felt like I had been transported back to the Go-Go-Go 90s. Here was a story on how the CEOs at California’s top 100 publicly held companies had earned a collective $1.1 billion in 2004 -- a 20 percent increase from the year before. Contrast that with the 2.9 percent bump for the average worker.
Back when I was writing Pigs at the Trough, documenting the worst excesses of corporate America, it seemed like the worm was about to turn. We had George Bush running from his previous incarnations as Kenny Boy Lay’s buddy and declaring a new era in corporate responsibility. We had Sarbanes-Oxley, and the perp walks of Rigas and Kozlowski and Waksal and Ebbers and Skilling and Fastow. We had the fall of Enron and WorldCom and Adelphia and Tyco and Arthur Andersen... and the rise of Eliot Spitzer and a newly muscular SEC. We watched as Harry Blodgett and Jack Grubman and Mary Meeker and Abby Joseph Cohen all wiped the egg off their faces. We had AOL splashing across its welcome page a story on "The Greedy Bunch" -- Fortune magazine’s evisceration of America’s most avaricious execs.
We had contrition and mea culpas and promises of a new beginning. But, as the Times story shows, that is clearly not the case -- particularly when it comes to the widening gap between CEO compensation and worker pay. The upstairs/downstairs divide is bigger than ever.
This was written over 4 years ago, but still holds true today, and underlines my point. You see, if a CEO who wants to get paid to be the "best and brightest" isn't very good at being a big powerful CEO, he can just find the accounting agency that can cook his books up the best, and then we change this Credit Default Swap from a liability to an asset, and we hide these funds in a secret account in the Cayman Islands, and with a little more presto chango your walking zombie of a POS TBTF monstrosity that hasn't performed well in years now looks like a viable stock buy, and boom, you're good to go. Now all we need is CNBC or Bloomberg or somebody to give it a thumbs up, the stock goes up, the dividend goes up this quarter, and the CEO can now justify making 3 million times the minimum wage. Everybody is happy, until all of us working class losers stop being able to afford our mortgages, and then the house of cards falls down and the corrupt system is over. Right?
April 2, 2009 Board Meeting
Determining whether a market is not active and a transaction is not distressed. The Board discussed comment letters received on proposed FSP FAS 157-e, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed. In response to comment letters and additional feedback received, the Board decided to make significant revisions to the proposed FSP. The Board decided that the final FSP would
1. Affirm that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions (that is, in the inactive market).
2. Clarify and include additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active.
3. Eliminate the proposed presumption that all transactions are distressed (not orderly) unless proven otherwise. The FSP will instead require an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence.
4. Include an example that provides additional explanation on estimating fair value when the market activity for an asset has declined significantly.
5. Require an entity to disclose a change in valuation technique (and the related inputs) resulting from the application of the FSP and to quantify its effects, if practicable.
6. Apply to all fair value measurements when appropriate.
Please correct me if i am wrong, but does this say that the accountants are going to allow Corporations to decide for themselves how much they are going to say their distressed assets (worthless paper) and other assets are worth? Does this not turn modern certified accountants into nothing more than a rubber stamp? An even better question to ask is "How is this not fucking illegal, and what the fuck does the SEC do for a living?"
According to the FASB these conclusions are tentative and may be changed at future board meetings. These decisions only become final after a formal written ballot to issue a final standard has been approved. Still, if this is what they consider Generally Accepted Accounting Practices, what is not accepted?
Creative accounting is the norm. What is creative accounting? Ask wikipedia.
Creative accounting and earnings management are euphemisms referring to accounting practices that may follow the letter of the rules of standard accounting practices, but certainly deviate from the spirit of those rules. They are characterized by excessive complication and the use of novel ways of characterizing income, assets, or liabilities and the intent to influence readers towards the interpretations desired by the authors. The terms "innovative" or "aggressive" are also sometimes used.
The term as generally understood refers to systematic misrepresentation of the true income and assets of corporations or other organizations. "Creative accounting" is at the root of a number of accounting scandals, and many proposals for accounting reform - usually centering on an updated analysis of capital and factors of production that would correctly reflect how value is added.
Newspaper and television journalists have hypothesized that the stock market downturn of 2002 was precipitated by reports of accounting irregularities at Enron, Worldcom, and other firms in the United States.
One commonly accepted incentive for the systemic over-reporting of corporate income which came to light in 2002 was the granting of stock options as part of executive compensation packages. Since stock prices reflect earning reports, stock options could be most profitably exercised when income is exaggerated, and the stock can be sold at an inflated profit.
The most notable activist is Abraham Briloff (professor emeritus of CUNY Baruch) who for years wrote a column for Barron's that constantly analyzed breaches of ethics and audit professionalism among CPA firms. His most famous book is called Unaccountable Accounting. The profession, in turn, was not kind to Dr. Briloff [dead link] but much of what he advocated has been forced on the industry in the wake of the Enron scandal (See Sarbanes-Oxley).
According to critic David Ehrenstein, the term "Creative Accounting" was first used in 1968 in the film The Producers by Mel Brooks.
Yup, Wall Street accountants are the same as the Character Leo Bloom played by Matthew Broderick in The Producers.
Now we are going out of business, and our country is going down the toilet.
Did Bush solve this the first time when Enron and a bunch of other crooks went belly up? No. A few people went to jail, a few companies went away, the toothless Sarbanes-Oxley Act was passed but it doesn't apply to private companies, they had a truthy commission and then the subject on TV switched to Brittany Spears or some other crap, and American ADHD saved the day again.
What exactly are the Generally Accepted Accounting Procedures?
The term "generally accepted accounting principles" has a specific meaning for accountants and auditors. The AICPA Code of Professional Conduct prohibits members from expressing an opinion or stating affirmatively that financial statements or other financial data "present fairly... in conformity with generally accepted accounting principles," if such information contains any departures from accounting principles promulgated by a body designated by the AICPA Council to establish such principles.
The AICPA Council designated FASAB as the body that establishes accounting principles for federal entities. The AICPA's hierarchy of generally accepted accounting principles in Statement of Auditing Standards (SAS) No. 91, The Federal GAAP Hierarchy, governs what constitutes GAAP for U.S. government reporting entities. The hierarchy lists the priority sequence of sources that an entity should look to for accounting and reporting guidance.
I interpret this as meaning "Whatever the hell we say it is. " Which just proves my point, it is accounting with no accountability.
Who sits on this board?
Wendy M. Payne, Executive Director -
Eileen W. Parlow
Domenic N. Savini
And who appoints this board?
In October 1999, as a result of the American Institute of Certified Public Accountants conferring its Rule 203 status on the FASAB, amendments were made to the Memorandum of Understanding creating FASAB and its Rules of Procedures. Through these amendments, FASAB's Principals – the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Comptroller General of the United States -- established new procedures for selecting FASAB's three non-federal members. As a result, an Appointments Panel was created to advise the FASAB Principals on appointments and re-appointments for these three positions. The Appointments Panel met in June and August to consider both its own procedures and pending re-appointment decisions.
The Appointments Panel's procedures provide for the creation of a Registry of Candidates interested in serving on FASAB. This registry will ensure that FASAB is able to fill any vacancies among the non-federal members quickly and that the public interest is well represented.
The registry is open to non-federal professionals interested in serving on FASAB. If you are interested in serving, the FASAB website includes a Statement of Board Member Responsibilities (www.fasab.gov/pdf/responsib.pdf). The full text of the Appointments Panel Policies and Procedures will be available at the website shortly. These documents provide additional information about both serving on the Board and how the appointment process is conducted.
The three non-federal positions are part-time positions. The Chairman's position is compensated at half of an executive level salary. The two non-federal members are compensated at an hourly rate for attendance at Board meetings and an equivalent amount of time for preparation. These members are typically compensated for approximately 200 hours during one year of Board service.
bold text added by the diarist
When I look at the state of the country around me I see individuals losing their savings, their jobs, their retirements and their homes. When I look at the TBTF POS Banks and all the other Multi-national Corporations, I can see that they will get bailout after bailout, and no one ever loses a bonus, let alone their job. The double standard is appalling.
We do not have an Accounting Industry anymore. We have four big Arthur Anderson's gussied up as legitimate businesses. PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, KPMG and a slew of other crooks have told us all is well and given the thumbs up on the green light that Jim Cramer and others have given us for years. We need to take these people out of business before they take us down with the ship along with them.
Arthur Anderson is alive and well, in the hearts of every Leo Bloom Accountant who will fudge the numbers while working for every Max Bialystock CEO. The only difference between real life and the movies is, in the movies, people went to jail.