Discussion in 'Politics' started by mattjclark, Aug 5, 2002.
This is a great idea. I don't think you fully understand it. Do some research.
Admittedly, I don't fully know all the details.
So tell me why is this a good idea?
To me this is as useful as the cops having you sign a piece a paper stating that you don't speed on the freeway. It probably won't make you confess the times you've sped in the past and it probably won't make you stop speeding in the future.
well, there's this little notion of 'accountability.' you sign, you commit yourself willfully to the veracity of the numbers. You can't blame your auditors as easily, 'cause you're saying, 'I'll make sure the numbers are real, as best I can.'
Not a perfect fix, but a start. The fact that accountability is so revolutionary means we have to take baby steps.
As Cracked already mentioned, management already attests to the "veracity of the numbers" in the rep letter. So basically what you're saying is that management has to sign two rep letters this year rather than one (big deal).
Hell, CEO's usually don't even know what GAAP is, and you're expecting them to sign a document that says that there financial statements represent fairly in accordance with GAAP; PLEASE. The only GAAP they know is the GAAP in pay they'll suffer if they don't sign the letter.
Working in accounting most of my life, I can honestly say there is no way a CEO or even a group of directors can attest to the financial statement of a corporation the size of 3M. It's just too damn big. No one could correctly track and classify all the assets and liabilities. If you think that's what is going on, I hate to burst your bubble, but it's not.
No one knows the truth, not the management, not the auditors, not government and certainly not the public.
Worse yet, most CFOs don't know what GAAP is. I am a US CPA with one of the (now) big 4 firms on assignment in Japan currently and work exclusively with multi-national SEC companies. I am amazed (as are my European and Australian counterparts) that most US CFOs are not even certified accountants.
So true Allen,
Today the CFO is just as much a figurehead position as the CEO. In the old days the CEO was the pretty face that cheered on the company to success, while the CFO's actually ran the company.
No longer. Today the CFO is considered the guy to take over when the CEO retires, so guess what? The CFO has to be a pretty face shaking his pom-poms and doing high-kicks right behind the CEO. They don't know anything about the business or accounting or the fairness of their financial statements.
If people think this thing has run its course, they are sadly mistaken.
Thank you for posting Allen. It's good to see some fellow accountants backing me up.
It's just a bunch of lambs being led to slaughter
I was the CFO of a large non-profit for a number of years. I would tend to agree with both of your statements. It goes without saying that in the larger entities, CFOs rely heavily on a number of key underlings to do the real work. Most of the "problems" that are being found today are the result of simple aggressiveness rather than fraud per se. Many of the CEOs were presented with GAAP methods and together with the CFOs, decided to reinterpret some of them.
Of course, aggressiveness in this area can constitute fraud when taken to an extreme, but a lot of these guys were young and had neither the experience or "suitable education" to properly make these decisions in the face of such pressure. I'm not defending them, but I think it helps to understand how we arrived at this mess. This is clearly far from over.
After reading the case of Enron, I can understand how the auditors may have been confused and the interpretation of the financials left room for a gray area which no one truly understood until the collapse.
I think we would all agree that there is a lot more gray area in accounting than most people realize, and no doubt the interpretations of that gray area can differ extensively; however, when I hear about how the Worldcom fraud was perpetrated, it makes my heart stop beating.
No one who has every passed the CPA exam would capitalize those cost. There was no matching of revenue to expenses (Paton & Littleton's most fundamental rule of all accounting).
This is not a theoretical example of aggressive accounting, this is lying, plain and simple.
Once I realized that such a stupid mistake could take down Worldcom, I realized it could happen to GE, GM, 3M, Oracle, Dell, Cisco, IBM etc. etc..
A little story-
One time I worked on an audit of a subsidiary of GE Capital Corporation that had annual revenue of about $50 million. I found a mistake of $2.5 million somewhere in the numbers. The partner wrote it off as immaterial and moved on.
Now if that can happen on small scale, what could happen on a larger scale?
I'm not a corporate law expert but something to consider here is personal liability of the executives. There are some instances when personal liability can attach, for example during the SEC registration process, with regard to promoting an improperly registered offering, etc.
I don't know exactly what the SEC is requiring, but if it is construed so that personal liability can attach for material misrepresentations on certified documents, it's a VERY big thing, at least to the CEO's themselves. You can bet the plaintiff's bar is chomping at the bit on this, and if found liable a single suit could totally wipe out the CEO and his family for life.
Of course, if there is such a risk, the corporate lawyers will create super-expensive procedures to nullify it (on the corporate tab), and they're the only ones that will really wind up gaining from all this in the end...
but what the hell -- they contribute a ton to the campaigns and nobody will figure all of this out till after the next election, right???
"Each man is the smith of his own fortune."
I had to look it up. The only thing I learned in high school latin was how to improve my cheating alilities.
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